case 1:11-cv-00784-ode document 278 filed 10/03/19 page 1 ... · on april 30, 2019 [doc. 262], and...
TRANSCRIPT
FILED 1IN
IN THE UNITED STATES DISTRICT CObRT T n
FOR THE NORTHERN DISTRICT OF GEORGIA !' ATLANTA DIVISION wkua
BARBARA J. FULLER; MARIAN C. WILLIAMS; NATALIE BROWN; ELAINE JEFFERSON; BARBARA A. KENNEDY; SELETHIA PRUITT,
Plaintiffs,
CIVIL ACTION NO. 1:11-CV-784-ODE
SUNTRUST BANKS, INC.; MIMI BREEDEN; MARK CHANCY; ALSTON D. CORRELL; DAVID DIERKER; KEN HOUGHTON; THOMAS KUNTZ; DONNA LANGE; JEROME LIENHARD; THOMAS PANTHER; LARRY L. PRINCE;l WILLIAM H. ROGERS, JR.; CHRISTOPHER SHULTS; MARY STEELE; GREGORY MILLER; ALEEM GILLANI; PAUL BURDISS; BEAU CUMMINS; AL KELOSAR; REBECCA LYNN-CROCKFORD; TIM SULLIVAN; SUNTRUST BENEFITS PLAN COMMITTEE; SUNTRUST BENEFITS FINANCE COMMITTEE,
Defendants.
• :FI e
'On September 25, 2019 attorneys for Defendants filed a Suggestion of Death regarding Larry L. Prince [Doc. 2771.
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 1 of 93
Table of Contents
I. UNDISPUTED FACTS . . . . . . . . . . . . . . . . . . . . . 2
A. The Plan . . . . . . . . . . . . . . . . . . . . . . . 5
B. The Plan Committee and Other Relevant Entities. . . . 6
C. Plan Committee Conduct Regarding the Affiliated
Funds . . . . . . . . . . . . . . . . . . . . . . . 14
1. Capital Appreciation Fund. . . . . . . . . . . 16
2. Small Cap Growth Fund . . . . . . . . . . . . . 22
3. Growth and Income Fund . . . . . . . . . . . . 24
4. Mid-Cap Equity Fund . . . . . . . . . . . . . . 28
5. Investment Grade Bond Fund . . . . . . . . . . 35
6. Short term Bond Fund . . . . . . . . . . . . . 36
7. Prime Quality Money Market Fund. . . . . . . . 37
8. International Equity Index Fund. . . . . . . . 41
D. Plan Committee Conduct Regarding Non-Proprietary
Funds . . . . . . . . . . . . . . . . . . . . . . . 44
E. Plan Committee Conduct Regarding Potential ERISA
Litigation Related to the Plan. . . . . . . . . . . 49
F. The Plan's 2012 Vanguard Index Fund Overhaul. . . . 50
II. MOTIONS TO EXCLUDE EXPERT OPINIONS . . . . . . . . . . . 53
A. Defendants' Motion to Exclude Opinion 5 of
Plaintiffs' Expert Dr. Steve Pomerantz, Ph.D.
[Doc. 2501 . . . . . . . . . . . . . . . . . . . . . 55
B. Plaintiffs' Motion to Exclude the Expert Reports
of Defendants' Experts Dr. John Minahan and
Dr. Bruce Stangle [Doc. 265]. . . . . . . . . . . . 58
1. Dr. John Minahan's Expert Reports. . . . . . . 58
2. Dr. Bruce Stangle's Expert Reports . . . . . . 63
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III. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT {Doc. 251] . . . 68
A. Legal Standard . . . . . . . . . . . . . . . . . . . 68
B. Discussion . . . . . . . . . . . . . . . . . . . . . 70
1. Duty of Loyalty . . . . . . . . . . . . . . . . 71
2. Duty of Prudence . . . . . . . . . . . . . . . 74
i. Mid-Cap Equity Fund . . . . . . . . . . . 80
ii. Capital Appreciation Fund . . . . . . . . 82
iii. Prime Quality Money Market Fund . . . . . 83
iv. Growth and Income Fund. . . . . . . . . . 84
v. International Equity Index Fund . . . . . 86
3. Loss Causation . . . . . . . . . . . . . . . . 86
IV. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . 90
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This Employee Retirement and Income Security Act ("ERISA")
class action is before the Court on Defendants' Motion to Exclude
Opinion 5 of Plaintiffs' Expert Dr. Steve Pomerantz, Ph.D. [Doc.
2501; Defendants' Motion for Summary Judgment [Doc. 2511, and
Plaintiffs' Motion to Exclude the Reports of Defendants' Experts
Dr. John R. Minahan and Dr. Bruce Stangle [Doc. 269]. For the
reasons provided below, Defendants' Motion to Exclude Opinion 5
of Plaintiffs' Expert Dr. Steve Pomerantz, Ph.D. is GRANTED [Doc.
250]; Defendants' Motion for Summary Judgment is GRANTED IN PART
and DENIED IN PART [Doc. 251]; and Plaintiffs' Motion to Exclude
the Reports of Defendants' Experts Dr. John R. Minahan and Dr.
Bruce Stangle is DENIED [Doc. 269].
I. UNDISPUTED FACTS
The following facts are undisputed unless otherwise stated.
This ERISA class action involves claims against Defendants,
who served as fiduciaries to the SunTrust Banks, Inc. 401(k) Plan
("Plan"), for alleged breaches of their fiduciary duties of
prudence and loyalty by failing to properly monitor the funds in
the Plan and subsequently failing to remove eight Affiliated Funds
from the Plan [Docs. 194; 262 at 8-9].2
2 Plaintiffs created the denomination "Affiliated Funds" to describe eight proprietary SunTrust funds. Plaintiffs label them Affiliated Funds because the fees associated with these
I
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On April 24, 2008, Mary Lee filed an administrative claim
alleging violations of ERI SA- -including breaches of fiduciary
duties--by the Plan's fiduciaries in causing the Plan to invest
in SunTrust's proprietary, or affiliated, funds [Doc. 262-11 at
2-4]. This lawsuit was subsequently initiated on March 11, 2011,
with the filing of the original complaint [Doc. 1]. Plaintiffs
filed their Second Amended Consolidated Class Action Complaint
("Complaint") on December 19, 2017 [Doc. 194]. The Complaint
brought eight claims against Defendants, who are--as described by
Plaintiffs--"the two committees that had responsibility for Plan
investments during the Class Period" and their members [Doc. 262
at 9] . 3
investment options were paid to their investment advisor, RidgeWorth Capital Management, Inc.--a wholly-owned SunTrust subsidiary, during the Class Period [Docs. 194 ¶ 34; 236 ¶ 34]. For example, records reflect that Plan participants paid over $5.5 million in fees in 2005, $5.7 million in fees in 2006, $5.9 million in fees in 2007, and $5.3 million in fees in 2008 [Doc. 263-23 at 2]. The Court uses the Affiliated Funds denomination for consistency's sake. The Affiliated Funds include the following funds: Capital Appreciation, Growth and Income, Mid-Cap Equity, Small Cap Growth, International Equity Index, Prime Quality Money Market, Short Term Bond, and Investment Grade Bond [Docs. 194 ¶ 6; 262 at 9 n.1].
3 All the members of the Plan Committee and its Investment Sub-Committee were SunTrust Banks, Inc. officers and employees [Doc. 266-14 at 9].
3
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The Court granted summary judgment as to Count II of the
Complaint in its order of May 2, 2018 [Doc. 219] and granted
summary judgment as to Count VIII of the Complaint in its order
of July 16, 2019 [Doc. 219]. Defendants filed their present
motion for summary judgment on March 8, 2019 [Doc. 251]. In
their motion, Defendants move for summary judgment as to the
remaining claims in the Complaint--Counts I, III, IV, V, VI, and
VII [Doc. 251-1 at 21. The parties agree that Counts I and VII
are duplicative and allege breaches of the fiduciary duties of
loyalty and prudence, and the other counts--Count III, IV, and V
--are derivative of Counts I and VII [Does. 251-1 at 6; 262 at
9].4 Thus, the viability of all remaining claims turns on whether
a genuine issue of material fact exists as to whether Defendants
violated their fiduciary duties of loyalty and prudence to the
Plan. Plaintiffs responded in opposition to Defendants' motion
on April 30, 2019 [Doc. 262], and Defendants filed their reply on
May 24, 2019 [Doc. 268].
4 According to Plaintiffs, Count I and Count VII, which are "roughly equivalent," allege breaches of the fiduciary duties of loyalty and prudence and are the "primary claims" in the Complaint [Doc. 262 at 9]. "The remaining counts [in the Complaint] are `derivative' in that they require a finding of liability under Counts I [or] VII . . . to be viable" [Id.].
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A. The Plan
SunTrust Banks, Inc. ("SunTrust") is a commercial bank [Docs.
194 ¶ 28; 196 ¶ 28]. SunTrust sponsors two plans for its
employees: (1) the SunTrust Banks, Inc. 401(k) Plan, a defined
contribution plan; and (2) the Pension Plan, a defined benefit
plan [Docs. 223-19 at 9-10; 194 ¶ 36; 196 ¶ 361. The 401(k) Plan
allows participating employees to invest part of their earnings,
tax-deferred, in various investment options, with SunTrust
matching employees' contributions to a certain extent [See
generally Docs. 223-19; 223-20; 223-211. The balance of a
participant's 401(k) Plan account is equal to the sum of
contributions plus or minus investment gains or losses [See
generally Docs. 223-19; 223-20; 223-211.
Trusco Capital Management, Inc., a registered investment
advisor, was a SunTrust subsidiary and acted as the investment
manager for a group of mutual funds named STI Classic Funds [Id. ] .
Effective March 31, 2008, Trusco was renamed RidgeWorth Capital
Management, Inc. (collectively, "RidgeWorth") [Doc. 223-6 at 8]
On June 2, 2014, well after the conclusion of the Class Period,
SunTrust sold RidgeWorth [Docs. 194 ¶ 34; 196 ¶ 341.5
5 According to the Court's order of June 27, 2018, the Class Period is March 11, 2005 to December 31, 2012 [Doc. 222].
I
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B. The Plan Committee and Other Relevant Entities
SunTrust had a Benefits Plan Committee that served as the
named fiduciary and administrator for the 401(k) Plan and Pension
Plan [Docs. 228-10 at 6; 223-26 at 2-3]. Members of the Benefits
Plan Committee were SunTrust officers and employees [Docs. 194
¶¶ 31-32; 196 ¶¶ 31-32; 223-2 ¶ 30; 228-1 IT 30]. By 2008, the
Benefits Plan Committee included an Investment Sub-Committee,
which was responsible for overseeing and implementing investment
monitoring guidelines for the Plan and reporting regularly to the
Benefits Plan Committee [Id.].
The Investment Sub-Committee was tasked with "responsibility
for reviewing and assessing performance of investment choices
offered" in the Plan, as well as responsibility "for making
recommendations to the Benefits Plan Committee with respect to
investment fund additions, substitutions, replacements, removals,
and changes in investment style categories" [Doc. 223-33 at 2].
The investment monitoring guidelines were created "to provide a
framework for the committee's activities related to the
investments that were available" in the Plan and "to support a
documented, consistent process for monitoring performance of [the
Plan's] investment options" [Docs. 251-23 at 54:2-7; 251-30]. The
guidelines indicated that the Investment Sub-Committee "may"
6
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consider performance information from "a non-SunTrust affiliated
investment consultant engaged by SunTrust to analyze and report
on the Plan investments"; "[f]und investment performance metrics
and scoring based on the SunTrust Retirement Solutions Product
Methodology," used by SunTrust's Financial Services Oversight
Committee ("FSOC" ) 6 ; "[q]uantitative and qualitative analysis
prepared by the Strategic Allocation Solutions group of
[RidgeWorth] when requested by the Investment Sub-Committee in
order to obtain additional non-performance related forward-
looking information regarding existing funds or investments, or
prospective funds or investments"; and other data at the
discretion of the Investment Sub-Committee [Doc. 251-9 at 31.
The guidelines also required the Investment Sub-Committee to
provide quarterly investment performance reports to the Plan
Committee, which included an evaluation of the performance of
Plan funds and fund performance ratings by Towers Perrin
("Towers"), an outside advisor, and also by SunTrust's FSOC [Id.
6 The Financial Services Oversight Committee was a group in SunTrust's Wealth Management division that, in part, evaluated and selected funds to include in the Plan [Docs. 251-9 at 2; 251-10 at 206:17-20; 251-11 at 59:19-23; 251-12].
7
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at 4]. Towers' fund performance ratings were assigned by color:
green, yellow, or red [Doc. 251-32 at 2]. Green indicated "no
action [was] necessary" regarding the fund; yellow indicated
"action [was] not necessary but closer attention [to the fund]
was warranted"; and red indicated "action [was] necessary"
regarding the fund [Id.]. Towers' ratings were based on "five
primary investment performance factors," including "fund
performance relative to its respective benchmark" and "fund
performance relative to its respective peer group" over periods
of 1, 3, and 5 years and since client inception [Doc. 264-8 at
6]. The FSOC's fund performance ratings were assigned by number:
one through five, with five being the best possible score [Doc.
251-9 at 9-10]. FSOC's scoring system contemplated a review of
a fund's "performance ranking" over 1-, 3-, 5-, and 10-year
periods [Id. at 81. When FSOC ratings were presented to the Plan
Committee, however, they were color-coded to be consistent with
Towers' rating method [Doc. 264-7 at 2]. Green indicated the fund
had preferred status and a score of greater than 3.0; yellow
indicated discretion to move the fund to "on-watch" status and a
score between 2.5 and 3; and red indicated the fund should be "on-
watch" status, with discretion to move it to non-preferred status,
and a score below 2.5 [Doc. 251-31 at 4].
11
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In July 2011, the Benefits Plan Committee became two
committees; one of them, the Benefits Finance Committee, assumed
responsibility for the Plan's investments as the Benefits Plan
Committee had done [Docs. 251-15, 251-16].7 Like the Benefits
Plan Committee before it, the Benefits Finance Committee was the
named fiduciary "responsible for managing the funding, cost, and
financial aspects of the Plan, including the investment of Plan
assets" [Doc. 251-171. Throughout the Class Period, the Plan
Committee met at least quarterly--totaling over sixty meetings,
and meeting minutes were kept for these meetings [Doc. 254 IT 34].
The Plan Committee had an Investment Policy Statement
("IPS") that was "intended to assist [it] with guidance in
discharging certain fiduciary responsibilities" and with
"administering the assets of the Plan consistently and
effectively" [Doc. 263-44 at 2]. Drafts began and circulated as
early as 2003, and the 2003 IPS draft stated that the Plan
Committee was responsible for selecting the Plan's investment
options and "[p]eriodically review[ing the] Plan's investment
performance and approving investment option[s]" [Doc. 251-22 at
I For ease of reference, the Court refers to both committees responsible for the Plan's investments during the Class Period--the Benefits Plan Committee prior to July 2011 and the Benefits Finance Committee afterward--as the "Plan Committee."
I
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3 ] . The document also listed criteria for selecting funds for
the Plan, including that a fund's performance be "equal to or
greater than the median return for an appropriate, style-specific
benchmark and peer group over a specified time period" [Doc. 263-
44 at 6]. The 2003 IPS draft also included guidelines for
monitoring and retaining investments, one of which being to
"confirm[] that the criteria originally satisfied[, such as the
above-median return requirement against benchmarks,] remain so"
[Id. at 7].
A later, 2008 draft of the IPS was formally approved by the
Plan Committee at its January 8, 2008 meeting [Doc. 263-47 at 4].
Like the prior 2003 draft, it required Plan investments to meet
certain criteria for selection, such as "a reasonable performance
record, typically a minimum of three years," "relatively superior
return (to 50th percentile or better) compared to its peers over
a trailing performance of three or five years," and "reasonable
expenses" [Doc. 263-48 at 6]. Following selection, the IPS
specified that ,the Investment Sub-Committee was to annually
review the performance of investments "based on the criteria
specific in the Investment Monitoring Guidelines at least
annually . . . consider[ing] the performance of each fund or fund
manager against its appropriate benchmark" [Id. at 7]. Steve
10
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Castle,8 a SunTrust ERISA attorney, reviewed the Investment Policy
Statement at the Plan Committee's January 8, 2008, meeting" [Docs.
194 ¶ 58; 196 ¶ 58; 251-248].
8 According to Steve Castle's deposition testimony, his role with the Plan Committee was to "provide fiduciary guidance" and "monitor the process they engaged in" [Doc. 263-7 at 93:24-94:15]. Castle began working with the Plan Committee in February 2006 [Doc. 263-26 at 2-3]. On November 6, 2006, he sent an email to another SunTrust employee with the subject line "Investment Sub-Committee" and a document titled "Plan Investment Monitoring" attached [Doc. 263-50]. The body of the email stated that "[a]ttached are investment monitoring procedure proposals and a brief set of slides for discussion" [Id. at 2]. The Plan Investment Monitoring document was a PowerPoint presentation, and it acknowledged "[s]pecific challenges for the SunTrust 401(k)" Plan in "offering [its] own funds" as an " [i] nherent conflict" and a "[h]igher standard of scrutiny" [Doc. 264-1 at 3]. The presentation also included a monitoring proposal that "[r]equire[d] classification of funds not meeting performance standards" and "affirmative action if fund issues [are] not rectified within one year" [Id. at 4]. Later that month, Castle "presented a process for evaluating fund performance" in the Plan to the Plan Committee [Doc. 264-2 at 4] The proposed process included a requirement that funds categorized as "On Watch" be removed from the Plan "if the issue or issues resulting in the classification are not rectified within one year from the date the fund is classified" [Doc. 264-3 at 5]. Following Castle's presentation, Plan Committee member Mimi Breeden expressed that she "wanted to ensure that the process was not entirely formulaic but included some subjective measures" [Doc. 264-2 at 4]. Thus, Castle and Plan Committee member Ken Houghton worked to create a "final version" of the investment monitoring guidelines with the goal of leaving "discretion" to the Investment Sub-Committee to decide what actions to recommend to the Plan Committee in the event monitoring processes were triggered [Doc. 264-4 at 2]. The final Investment Monitoring Guidelines for the Plan did not include some of the language that was present in the earlier proposed guidelines; for example, the final guidelines did not require On Watch funds to be removed if issues were not resolved within a year [Doc. 264-5]. Plan Committee member Donna Lange
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According to the Investment Policy Statement, the Plan
Committee may "use an investment consultant to advise the
Committee on Plan investment policy, investment options,
investment monitoring and compliance" [Doc. 251-24 at 4]. Towers
Perrin ("Towers"), a "third-party benefits management consulting
firm," served as the investment consultant to the Benefits Plan
Committee for the Plan [Docs. 223-30 at 8; 223-11 at 5]. Towers
prepared quarterly reports for the Plan Committee regarding fund
performance in the Plan [Doc. 251-27]. According to the
deposition of Chris McGoldrick, a Towers independent investment
consultant who advised the Plan Committee during the Class Period,
one of Towers' functions was to advise the Plan Committee on what
funds to retain or remove [Docs. 251-28 at 93:7-14, 323:10-
324:19]. McGoldrick further testified that Towers' role was to
"give an independent perspective" on the Plan's funds and that
Towers "periodically help[ed] SunTrust review the fees and
benchmark the fees" [Id. at 109:13-22, 130:17-18].
At a February 27, 2006, Plan Committee meeting, SunTrust
attorney Steve Castle presented regarding "Plan Governance
stated in her deposition that, though the Plan Committee never formally adopted the investment monitoring guidelines, they "used them as a guideline for the process that [they] followed" [Doc. 262-19 at 171:6-111.
12
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Issues," which included a review of the fiduciary duties of
loyalty and prudence [Docs. 263-8 at 3; 263-9]. An accompanying
presentation included a slide that described the fiduciary duty
of loyalty as a requirement that fiduciaries "discharge [their]
duties solely in the interest of the participants" [Doc. 263-9 at
13]. The same presentation included a slide stating that the
fiduciary prudence standard of care requires fiduciaries to "act
with [the] care, skill[,] and diligence of a prudent and
knowledgeable person . . . responsible for operating a plan" [Id
at 14]. Another slide listed as "[f]iduciary considerations"
using an "independent investment advisor" for fund additions,
deletions, and recommendations, and "expand[ing] non-
proprietary funds offered for participant selection" [Id. at 25].
Also at the February 27, 2006, Benefits Plan Committee meeting,
a PowerPoint presentation regarding SunTrust's Retirement, or
Pension, Plan was made titled "Investment Monitoring Overview"
[Doc. 263-28 at 4]. One of the slides in the presentation
acknowledged that a "[s]hift of assets to outside[, or non-
proprietary,] funds represents tangible loss of revenue to the
Company, based on expense ratios of funds utilized" [Id. at 5]
13
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C. Plan Committee Conduct Regarding the Affiliated Funds
In April 1996, the Plan Committee considered replacing non-
proprietary funds offered in the Plan with proprietary SunTrust
mutual funds offered by RidgeWorth [Doc. 262-22 at 3]. At the
Plan Committee's April 10, 1996, meeting, it was recommended that
the Plan's investments be changed to "some combination of STI
Classic Funds," many of which are the Affiliated Funds at issue
[Id. at 3]. Questions arose at the meeting regarding whether the
Plan Committee ought to "obtain investment evaluation/ selection
advice from an outside consultant" and consider funds "other than
those offered by SunTrust companies" [Id.]. At a May 22, 1996,
meeting, the five Plan Committee members present voted to change
the non-employer stock investments in the Plan to mutual funds,
and all the mutual funds considered were proprietary SunTrust
mutual funds [Docs. 263-11 at 2; 262-27 at 77:3-77:191.
According to the deposition testimony of Rule 30(b)(6) witness
Tom Panther, changing the funds offered in the Plan to mutual
funds meant Plan participants--rather than SunTrust--would be
paying the investment management fees [Doc. 262-24 at 56:20-25,
59:10-59:25].
At its July 10, 1996, meeting, the Plan Committee unanimously
approved replacing the common trust funds in the Plan with six
14
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RidgeWorth funds, four of which were Affiliated Funds: the Capital
Appreciation Fund, Investment Grade Bond Fund, Short-Term Bond
Fund, and Prime Quality Money Market Fund; it did so without
comparing the RidgeWorth funds to non-proprietary funds or
considering any non-proprietary funds [Doc. 263-13 at 2-3]. The
same is also true for the addition of the Growth and Income Fund,
Small Cap Growth Fund, Mid-Cap Equity Fund, and International
Equity Index Fund [See, e.g., Docs. 262-19 at 120:15-121:23,
122:8-125:2, 126:24-127:4; 262-27 at 93:6-21, 113:20-114:5; 161-
21 at 84:3-17; 262-25 at 235:2-236:51.
Notes summarizing the April 6, 2004, meeting of the Plan's
Investment Sub-Committee reveal that one issue discussed
regarding the Plan was "how to evaluate reputation risk associated
with incorporating third party funds" [Doc. 263-21 at 2]. A
member of the Investment Sub-Committee, Mark Chancy, stated in
his deposition that the reference to reputation risk in the
April 6, 2004, meeting notes related to the risk of incorporating
non-proprietary, third-party funds in the Plan's lineup [Doc.
262-12 at 121:12-122:4]. Committee member Bill Rogers, in his
deposition, noted that the Investment Sub-Committee likely
considered reputation risk as a factor when monitoring the
Affiliated Funds, which, in his opinion, was a legitimate
W
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consideration [Doc. 262-25 at 139:20-25, 140:14-23, 144:24-
145:14].
Throughout the Class Period, the Plan offered between 15 and
19 investment options [Doc. 254 ¶ 35, Ex. A ¶ 12]. When the
Class Period began, the Plan offered 14 investment options: the
eight Affiliated Funds, three other proprietary funds, and three
non-proprietary funds [Doc. 254 ¶ 35, Ex. A ¶ 12]. At the end
of the Class Period, the Plan offered 17 investment options: five
of the Affiliated Funds, three proprietary funds, and nine non-
proprietary funds [Doc. 254 ¶ 35, Ex. A ¶ 12] . All but one of
the eight Affiliated Funds were actively managed mutual funds
[Doc. 262-10]. The Plan Committee's conduct regarding each of
the individual Affiliated Funds is outlined below.
1. Capital Appreciation Fund
The Capital Appreciation Fund remained in the Plan for the
entire Class Period [Docs. 194 IT 135; 196 IT 135] . 9 Before the
Class Period, the Fourth Quarter 2004 Investment Performance
Review by Towers indicated the Fund lagged in its return versus
its benchmark for 1-year, 3-years, and since the fund's inception
9 The Capital Appreciation Fund was later named the "Large Cap Growth" fund [Docs. 194 ¶ 6; 196 ¶ 61 . For consistency's sake, however, the Court refers to the fund throughout the Class Period as the Capital Appreciation Fund.
16
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[Doc. 264-9 at 31]. However, the Fund was not discussed at the
Plan Committee meeting during which Towers presented its review
[Doc. 264-11].
The Capital Appreciation Fund's benchmark initially was the
S&P 500 Index [Doc. 264-14]; later, it was the Russell 1000 Growth
Index [Doc. 265-231.
By the end of 2005, the Fund had lagged its benchmark since
inception and over the trailing 1, 3, and 5 years and had a
negative information ratio10 [Doc. 264-12 at 4, 34]. The Fund
"had the worst benchmark relative performance of the Plan's
investments," "underperforming the S&P 500 Index by 6.80" [Doc.
264-12 at 4]. The Fund trailed its benchmark and again had a
negative information ratio in 2006 and into 2007 [Doc. 264-13 at
4, 6]. By First Quarter 2007, the Fund had earned 1.5% per year
over the last five years, compared to the 6.3% per year earned by
the S&P 500 Index [Doc. 264-14 at 4].
The Capital Appreciation Fund had a red or yellow rating
from Towers and FSOC from the Second Quarter 2007 through the
Third Quarter 2008 [Doc. 251-31]. During that period, the Fund
was rated "double red" by both FSOC and Towers for two quarters:
10 Information ratio "indicat[es] the amount of value added relative to the amount of unique risk assumed by the manger." Patrick J. Collins, Prudence, Banking L. J. 29, 82 n.53 (2007).
17
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Second Quarter 2007 and First Quarter 2008 [Doc. 251-38 at 3].
At an August 7, 2007, Plan Committee meeting, the Investment Sub-
Committee was directed to interview the Capital Appreciation
Fund's fund managers because of its red designation and the
Investment Monitoring Guidelines [Doc. 251-30 at 41.
Investment Sub-Committee meeting minutes from August 13,
2007, indicate the Fund's new managers were present and reflect
management changes to the Fund, which targeted "[i]mproved
quantitative process"; "[u]pgraded personnel"; "[r]isk control";
and the "[r]eposition of [f]unds within the [p]ortfolio" [Doc.
251-41 at 2-3]. As a result, 310 of the Fund's stocks had been
replaced as of the August 13, 2007, meeting [Id.]. After the
Fund's new managers left the meeting, "[t]he general consensus was
that the [Capital Appreciation Fund] should not be eliminated or
closed to new contributions based on the significant process and
personnel improvements instituted over the previous quarter" [Id.
at 4]. When Ashi Parikh of RidgeWorth presented these changes
to the Plan Committee at its August 13, 2007, meeting, he
understood he was trying to convince them to retain the Fund [Doc.
263-4 at 134:11-135:21]. The Plan Committee subsequently voted
to retain the Fund "based on the significant process and personnel
improvements instituted over the previous quarter," noting that
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the Fund "should be evaluated on future performance rather than
on past performance" [Doc. 263-32 at 41. The Plan Committee
"agreed with the Investment Subcommittee's recommendation to
closely monitor the performance of the [Capital Appreciation
Fund] over the next few quarters" because "the Fund [was] being
managed by a new team [and] following a new process," and "the
team should be given an opportunity to execute their strategy"
[Doc. 251-42 at 3].
At the November 13, 2007, Investment Sub-Committee meeting,
a Towers investment consultant "noted the tremendous turnaround
in the performance of the [Capital Appreciation Fund] since [the
new managers] have been in place" [Doc. 251-43 at 3]. The Sub-
Committee agreed not to recommend action to the Plan Committee
regarding the Fund "due to an improvement in both the absolute
and relative performance of [the] Fund" and to continue closely
monitoring the Fund [Id.]. The Towers' First Quarter 2008
Investment Performance Review noted that the Fund's performance
"had improved significantly [under its new management]
before the slip over the past quarter," during which the Fund had
received a double red rating from Towers and FSOC [Docs. 251-44
at 7; 264-23 at 4].
19
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Investment Sub-Committee meeting minutes from May 19, 2008,
indicate the Fund underperformed its benchmark over the three-
and five-year period. A Towers independent consultant stated the
underperformance could "be explained by holdings in the technology
sector which declined significantly in the first quarter of 2008"
[Doc. 251-43 at 4]. The Sub-Committee recommended continued
close monitoring of the Fund with no immediate action "based on
positive trends in the previous two quarters" [Id.]. According
to the Plan Committee's June 3, 2008, meeting minutes, it agreed
with the Sub-Committee's recommendation to continue closely
monitoring the Fund--despite a red rating--because it had shown
recent improvement and "interviews previously performed by
Towers[] found the new process to be sound and the investment
management team to be knowledgeable" [Doc. 251-39 at 31. The
Fund continued to have a red rating from Towers in the Second and
Third Quarters of 2008 [Doc. 264-23 at 4].
August 25, 2008, Plan Committee meeting minutes noted that
the Capital Appreciation Fund had outperformed its benchmark for
the second consecutive quarter and that "[a]lthough the fund had
negative absolute performance this period, the trend has been
positive since the new management team has been in place" [Doc.
251-46 at 3]. Starting in the Fourth Quarter 2008, the Fund was
20
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not scored red by either FSOC or Towers again [Doc. 251-38 at 3].
The Capital Appreciation Fund was rated yellow by Towers and
either yellow or green by FSOC from Fourth Quarter 2008 through
Second Quarter 2012 [Doc. 251-38 at 7]. February 27, 2009, Plan
Committee meeting minutes noted the Fund was no longer rated red
and "show[ed] continued signs of improvement, outperforming the
index by 1.10" [Doc. 251-47 at 3]. However, Towers' Fourth
Quarter 2009 Investment Performance Review noted that "[f]or
2009, the fund underperformed the benchmark by 4.20" [Doc. 264-
16 at 7]. Further, both Towers' Investment Performance Reviews
and the Investment Sub-Committee's data collection revealed the
Fund often failed to meet its benchmark over trailing periods of
3 and 5 years and had a negative information ratio [See, e. g. ,
Docs. 264-15 at 4, 6-7; 264-16 at 4,6-7; 264-19 at 2-3; 264-21 at
2-31. Then, according to the Towers' Third Quarter 2012
Investment Performance Report, the Capital Appreciation Fund's
trailing 1-, 3-, and 5-year performance was above the median of
its Morningstar" peer group [Doc. 252-1 at 33].
" Morningstar is a firm which provides investment research services. It provides peer group categories for different types of investments.
21
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2. Small Cap Growth Fund
The Small Cap Growth Fund was offered in the Plan for the
entire Class Period [Does. 194 ¶ 135; 196 ¶ 1351. Before the
Class Period, Towers' First Quarter 2003 report revealed the Fund
had a one-year loss of 7.2% compared to its benchmark [Doc. 265-
3 at 17]. In 2004, the Fund lagged its 1- and 3-year return
versus its benchmark [Doc. 264-9 at 14].
The Small Cap Growth Fund's benchmark was the Russell 2000
Growth Index [Doc. 265-23].
At the August 15, 2005, Plan Committee meeting, a Towers
independent investment consultant noted that, overall, "the
benchmarks were hard to beat" because of "the unique economic
environment," resulting in "poor relative performance" for the
Small Cap Growth Fund compared to "the stellar performance of the
benchmarks" [Doc. 252-3 at 3] . The Fund was still in the "top
quartile rankings of the total returns" [Id.]. Towers' Second
Quarter 2006 Investment Performance Review indicated the Fund's
management had recently left, and Towers' Fourth Quarter 2007
Investment Performance Review indicated the Fund "ha[d]
experienced a significant turnaround in performance since Chris
D. Guinther took over as lead portfolio manager . . . in 2007"
[Doc. 252-5 at 27]. The document went on to note that the Fund
W
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 24 of 93
had outperformed its benchmark by an average of 1.7% in the past
three quarters [Id.]. Similarly, Towers' Second Quarter 2008
Investment Performance Review noted "an overall improvement in
performance since the change in management" [Doc. 252-6 at 27].
However, Towers' Fourth Quarter 2008 review indicated it had
lagged its 3- and 5-year trailing return against its benchmark
and now had a negative Information Ratio, noting the "fund
underperformed the Russell 2000 growth index by 1.20, the second
consecutive quarter of lagging performance . . . in the second
quarter as well as all of 2007, the Small Cap Growth Fund lagged
the benchmark over the longer one-, three- and five-year periods"
[Doc. 264-10 at 25-261.
The Small Cap Growth Fund was rated red by FSOC in the Second
and Third Quarters 2009 and was never rated red by Towers [Docs.
251-31; 251-38]. Towers' Fourth Quarter reviews for 2009 and
2010 indicated the Fund lagged in its 2- and 5-year trailing
returns, continued to have a negative Information Ratio, and--in
2010--had a gain of 1.9% compared to its benchmark's 5.30 [Docs.
264-16 at 4-5, 25; 264-17 at 4]. At the November 16, 2010, Plan
Committee meeting, a Towers representative noted the Fund had
underperformed but not as critically as the Growth and Income
Fund had, partially because the Small Cap Growth Fund's "benchmark
23
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has been in the [first] and [second] quartile and very hard to
beat" [Doc. 252-8 at 3]. The Investment Sub-Committee and Towers
representative suggested the Fund should be monitored, and the
Plan Committee "supported this action" [Id.]. At the Plan
Committee's February 24, 2011, meeting, a Towers representative
expressed concern regarding the Fund's performance and noted its
yellow rating and that it was "trending down" [Doc. 265-11 at 3].
Towers' Fourth Quarter 2011 review indicated the Small Cap Growth
Fund was below its benchmark for trailing 3- and 5-year
performance [Doc. 264-18 at 10, 531.
Towers' Third Quarter 2012 Investment Performance Review
placed the Small Cap Growth Fund at or exceeding its Morningstar
peer group median for trailing 1- and 3-year performance [Doc.
252-10 at 52].
3. Growth and Income Fund
The Growth and Income Fund was in the 401(k) from the start
of the Class Period until it was removed on June 1, 2011 [Doc.
194 IT 135].12 Before the Class Period, Towers' Fourth Quarter
12 The Growth and Income Fund was renamed the "Large Cap Relative Value Equity" fund in 2005 and was renamed again in 2007 as the "Large Cap Core Equity" fund [Docs. 194 IT 6; 196 IT 6]. For consistency, the Court refers to the fund as the "Growth and Income Fund."
24
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2004 Investment Performance Review indicated the Fund was below
its 1-, 3- and 5-year returns against its benchmark and had a
negative Information Ratio [Doc. 264-9 at 29, 32].
The Growth and Income Fund's benchmark was the Russell 1000
Value Index [Doc. 264-14].
Between Second Quarter 2007 and Second Quarter 2010, the
Fund was rated red by Towers in one quarter: Second Quarter 2008
[Doc. 251-31 at 3]. The Fund was rated green by FSOC in eight of
those quarters [Id.]. Towers' First Quarter 2008 review
indicated the Fund had fallen behind its 3-year return versus its
benchmark [Doc. 265-22 at 5]. At the August 25, 2008, Plan
Committee meeting, the Plan Committee discussed "concerns"
regarding the Fund's performance and agreed with the Investment
Sub-Committee's recommendation that Towers be asked to interview
the Fund's management team [Doc. 251-46 at 3]. According to a
September 2008 "Manager Brief" by Towers on the Growth and Income
Fund, Towers was "unable to uncover evidence that there is a
systemic problem with the manager" and recommended the Plan
Committee "continue to monitor performance" [Doc. 252-61 at 5].
Towers' First Quarter 2009 Investment Performance Review
indicated the Fund continued to be behind in its 3-year return
25
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 27 of 93
against the benchmark and was below its trailing 5-year peer
ranking [Doc. 265-23 at 4-5].
At the August 30, 2010, Plan Committee meeting, a Towers
representative "pointed out that the [Fund] ha[d] underperformed
during the last 5 quarters and that [the Fund] should be watched"
[Doc. 262-15 at 3]. The Fund was rated red by FSOC in Third
Quarter 2010 and double red by both Towers and FSOC in Fourth
Quarter 2010 and First Quarter 2011 [Doc. 251-31 at 3]. Towers'
Fourth Quarter 2010 Investment Performance Review indicated the
Fund fell below its trailing 1-, 3-, and 5-year returns against
the benchmark, was ranked in the bottom quartile in peer rankings,
and had a negative Information Ratio; the document noted that
"[t]he [F]und underperformed the benchmark by 5.1% for 2010,
trailing the index all four quarter[s]" [Doc. 264-17 at 4-5, 9-
10]. On February 11, 2011, RidgeWorth announced a "new portfolio
management team" for the Fund [Doc. 252-16 at 2-4].
The Investment Sub-Committee met on February 22, 2011 and
discussed the Growth and Income Fund [Doc. 252-17 at 2]. In its
Fourth Quarter 2010 recommendation, the Sub-Committee stated
"[t]here are no immediate concerns with the new management team
of the Fund," but also that the recent resignation of one of the
Fund's managers "raises questions with respect to the investment
26
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discipline needed in the core space" [Id. at 2]. The Sub-
Committee also noted that a large percentage of the fund was held
by the Plan and recommended the Fund be removed "if and when the
Plan exceeds a significant portion of the [F]und" [Id.].
Additionally, the Investment Sub-Committee's research over the
years indicated problems with the Fund [See, e.g., Docs. 266-1 at
4 (noting that, in part of 2008, the Fund's returns were negative
and "continued to deteriorate" and that its "information ratio
continued to decline and fell to the bottom of the third
quartile"); Doc. 265-14 at 2 (noting the Fund's fourth and third
quartile ranking among peers at years one and five, respectively,
and noting that the Fund's "information ratio improved but
remained in the fourth quartile" and "selection returns improved
again but remained negative")].
On April 12, 2011, one month after this lawsuit was filed,
five members of the Plan Committee met "to discuss the future of
the [Growth and Income Fund] in the SunTrust Banks, Inc. 401(k)
Plan" [Doc. 252-18 a 2]. A SunTrust employee "confirmed that the
[F]und ha[d] been placed on the FSOC non-preferred list," and
another noted that "a change in manager or advisor is considered
a serious red flag and would look for an overwhelming reason to
retain the fund" [Id.]. According to the meeting minutes, "[t]he
27
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 29 of 93
[Plan] Committee agreed that the combination of performance,
management changes and changes to the fee structure necessitate
the removal of the Fund from the 401(k) Platform" [Id.]. After a
presentation of "several alternatives" to the Fund, the Plan
Committee approved the removal of the Growth and Income Fund from
the Plan and "the Vanguard Institutional Index Fund as a
replacement" [Id. at 3]. The Committee "agreed that one fund in
this space was appropriate" and "also approved the removal of the
[proprietary] SunTrust 500 Index Fund" [Id. at 21.
4. Mid-Cap Equity Fund
The Mid-Cap Equity Fund was in the Plan from the start of
the Class Period until its removal effective November 9, 2010
[Docs. 194 ¶ 135; 196 IT 135; 252-20 at 3].13 Before the Class
Period, at a May 20, 2002, Plan Committee meeting, a RidgeWor_th
representative, Doug Phillips, informed the Plan Committee that
the Fund's performance was "unacceptably low and that he [would]
address required changes in the management of the fund" [Doc.
2.65-1 at 3]. The meeting minutes do not indicate any further
discussion of the Fund's performance or the management changes;
13 Mid-Cap Equity Fund was renamed the "Mid-Cap Core Equity Fund" during the Class Period, but the Court refers to it consistently as the Mid-Cap Equity Fund [Doc. 194 ¶ 6, 196 ¶ 6].
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 30 of 93
Doug Phillips stated in his deposition that it "wasn't unusual
that even though questions would come up on the [401(k) P]lan, it
wasn't unusual that there were no questions on the [401(k) Plan"
[Docs. 265-1 at 3; 263-2 at 260:3-8]. Again at the Plan
Committee's February 24, 2003, meeting, Doug Phillips "expressed
continuing concern[n] with the performance of Mid-Cap equity
investment [] and indicated he [would] likely make changes in the
management and/or monitoring of the Mid-Cap funds" [Docs. 265-2
at 3; 253-2 at 249:24-20:8].
The Mid-Cap Equity Fund's benchmark was the Russell Mid-Cap
Index [Doc. 264-14].
According to Towers' report for the First Quarter 2003, the
Mid-Cap Equity Fund showed one-year losses of 4.2% compared to
its benchmark [Doc. 265-3]. At the Plan Committee's August 25,
2003, meeting, a Towers representative again addressed the Mid-
Cap Equity Fund, discussing its "relatively poor performance" and
noting that the Fund had "a relatively new fund manager and [was]
expected to see better relative performance in the future" [Doc.
265-5 at 3]. Again in its February 23, 2004, meeting, the Plan
Committee "expressed concern with the performance of the mid-cap
investments," and RidgeWorth's Doug Phillips stated "he believed
the new fund manager was directionally on track and that he was
9
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 31 of 93
still feeling okay with the manager's ability" [Doc. 263-46 at
4]. Towers' Fourth Quarter 2004 investment review indicated that
the Mid-Cap Equity Fund lagged in its 2-, 3-, and 5-year returns
--earning well below its benchmark--and had a 5-year negative
Information Ratio [Doc. 264-9 at 29, 34] . At the Plan Committee's
February 14, 2005, meeting, a member "reminded the Committee that
based on the poor performance of the Mid[] Cap [Equity Fund] last
year, and the recommendation of [RidgeWorth], the allocation to
the Mid-Cap [Equity Fund] has been reduced over the past 1.5
years" in SunTrust's Pension Plan, in which the Fund was also
included; there was no discussion of the Fund as it pertained to
the 401(k) Plan [Doc. 264-11 at 3].
At the end of 2005, the Fund lagged its benchmark for 3- and
5-year trailing returns and had earned only 5.2% compared to its
benchmark's 12.3% since inception [Doc. 264-12 at 141. It also
had a negative Information Ratio and a five-year ranking below
its peer median [Id. at 26-27]. At the February 27, 2006 Plan
Committee meeting, a Towers representative noted the Fund "posted
negative returns relative to the benchmark" [Doc. 263-8 at 4].
The Fund was rated yellow by both FSOC and Towers for the
Second, Third, and Fourth Quarters 2007. Towers' Fourth Quarter
2007 review indicated the Fund lagged its benchmarks over trailing
30
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 32 of 93
periods of 3 and 5 years, had a negative information ratio, and
remained below the median in its peer ranking for the five-year
trailing period [Doc. 264-15 at 20-21]. The 2007 review also
noted that the Fund's "returns ranked below median over short[-]
and long[ - ]term period[s]," and "its rolling information ratio
declined from the top to the bottom quartile over the past two
years as a result of weaker selection decisions" [Id.]. After
2007, the Fund was rated red by Towers and either red or yellow
by FSOC through at least the Second Quarter 2009 [Doc. 251-31 at
3]. The Fund was rated double red for six quarters between Fourth
Quarter 2007 and First Quarter 2009 [Doc. 265-10 at 2].
According to minutes from the August 25, 2008, Plan Committee
meeting, the Plan Committee discussed concerns regarding the Mid-
Cap Equity Fund and agreed with the Investment Sub-Committee's
recommendation for Towers to interview the Fund's management team
[Doc. 251-46 at 3]. At the September 15, 2008, Plan Committee
meeting, independent investment consultants from Towers stated
that interviewing the Fund's managers, which was "prompted by
significant underperformance," "did not reveal enough impairment
to the team or process to warrant termination of this fund
offering to plan participants at this time" [Doc. 251-46 at 7].
The Plan Committee reviewed recent fund performance which showed
31
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 33 of 93
improvement "relative to the benchmark from 2.07 below the index
as of 6/30/2008 to 1.99 below the index as of 8/31/2008" [Id.].
Two recommendations were made regarding the fund: (1) to freeze
the option, thereby preventing new contributions to the Fund; or
(2) to closely monitor the Fund's investment manager over the next
few quarters and then make a decision regarding the Fund based on
whether its performance improved [Id.]. The Plan Committee
decided that "[g]iven the improvement in performance coupled with
Towers['] report that no people or process issues were uncovered,
the Investment Subcommittee agreed with the recommendation . . .
to closely monitor performance . . ." [Id.].
At the February 27, 2009, Plan Committee meeting, a Towers
representative noted the Mid-Cap Equity Fund "demonstrated
positive trends," had "outperformed the index for the second
consecutive quarter after lagging the benchmark in the previous
three quarters," and was "expected to come off [the] watch list"
and red status if it continued that way for another quarter [Doc.
251-47 at 3]. Later that year at the May 20, 2009, Plan Committee
meeting, that same Towers representative noted that the Fund was
"showing trends in the right direction" and that Towers expected
it would be taken off the watch list "shortly if the trends
continue" [Doc. 252-22 at 3]. According to the Investment Sub-
32
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 34 of 93
Committee's Second Quarter 2009 recommendations--made after an
August 12, 2009, meeting--the Mid-Cap Equity Fund needed to
continue to be closely watched, but the Sub-Committee did not
recommend any action at the time because "[p]erformance is being
dragged down by poor past performance of another fund manager,"
"[t]he fund beat the index in the previous three quarters and for
the 1-year period," "[t]he manager remains focused on valuations,
sustainability of earning growth and balance sheet strength," and
"[w]hen fundamentals are again rewarded in the market, there
should be a noticeable turnaround in the performance of this fund"
[Doc. 252-23 at 2].
According to draft November 18, 2009, Plan Committee meeting
minutes, a Towers representative recommended the Plan Committee
"continue to monitor [the Mid-Cap Equity Fund] and wait for the
markets to settle before jumping to any conclusions" [Doc. 252-25
at 2]. According to the Investment Sub-Committee's Fourth Quarter
2009 recommendations--made after a February 10, 2010, meeting--
the Mid-Cap Equity Fund needed to continue to be closely watched,
but the Sub-Committee did not recommend any action at the time
because "[t]he fund exceeded [its benchmark] by 0.5% this quarter"
[Doc. 252-26 at 2]. According to Towers' Fourth Quarter 2009
33
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 35 of 93
Investment Performance Review, however, the Fund's performance
for 2009 ̀ was 5.3% below the benchmark" [Doc. 264-16 at 20-211.
The Investment Sub-Committee's First Quarter 2010
recommendations, following a May 17, 2010 meeting, note that both
the Sub-Committee and Towers recommend considering alternatives
to the Mid-Cap Equity Fund because, although the market had been
challenging, the Fund manager had not effectively navigated those
challenges and the Fund had experienced "an extended period of
underperformance" and Towers had expressed concerns about the
Fund's appropriateness for the Plan [Doc. 252-27 at 2]. Then, at
the May 18, 2010, Plan Committee meeting, a Plan Committee member
noted it had been appropriate to allow the Fund's new management
time to improve performance, but the Committee agreed with the
Sub-Committee that it was time to look at alternatives to the
Fund [Doc. 252-28 at 3]. Defendant Mimi Breeden, a Plan Committee
member, requested that the Sub-Committee identify alternatives
and "report back . . . as quickly as possible" [Id.]. At the
August 3, 2010, Plan Committee meeting, member Chris Shults
reported research regarding alternative funds and indicated that,
following a rejection of three alternative funds, seven other
funds had been considered [Doc. 252-29 at 2]. The Plan Committee
concluded the Principal MidCap Blend Institution Fund was the
34
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 36 of 93
best alternative to the Mid-Cap Equity Fund and approved a motion
to replace the Mid-Cap Equity Fund accordingly [Id.]. Effective
November 9, 2010, the Mid-Cap Equity Fund was removed from the
Plan and replaced by the Principal MidCap Blend Institutional
Fund [Doc. 252-20 at 31.
S. Investment Grade Bond Fund
The Investment Grade Bond Fund, later renamed the "Core Bond
Fund," was offered in the Plan throughout the Class Period [Docs.
194 ¶ 6; 196 ¶ 6] . The Fund's benchmark was the BC Gov/Credit
Index [Doc. 265-231.
Before the Class Period, Towers' Fourth Quarter 2004
Investment Performance Review indicated the Fund was below its
1-, 3-, and 5-year return against the benchmark and had a negative
Information Ratio for those time periods, as well [Doc. 264-9 at
35-6]. The same was true of the Fund according to Towers' Fourth
Quarter 2005 review [Doc. 264-12 at 14, 65].
The Investment Sub-Committee's compiled data during the
Class Period revealed some performance issues for the Fund. For
example, in the First Quarter 2008, the Fund's "[r]ank for
benchmark relative performance, performance versus peers and
performance attribution declined from green to yellow due to
recent underperformance," and the Fund's Information Ratio rank
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 37 of 93
declined from yellow to red [Doc. 266-1 at 5]. However, the Fund
was rated green by both Towers and FSOC from First Quarter 2009
until Third Quarter 2010 [Doc. 251-38 at 7]. From Fourth Quarter
2010 through the Second Quarter 2012, the Fund was rated yellow
by Towers and green by FSOC [Id.].
6. Short Term Bond Fund
The Short Term Bond Fund was offered in the Plan throughout
the Class Period [Docs. 194 IT 135; 196 ¶ 135]. Before the Class
Period, the Towers' Fourth Quarter 2004 review indicated the Fund
was below its benchmark in its 1-, 3-, and 5-year returns [Doc.
264-9 at 29]. Towers' Fourth Quarter 2005 review similarly
revealed the Fund was below its benchmark for 3- and 5-year
trailing return and since inception [Doc. 264-12 at 14].
The Short Term Bond Fund's benchmark was the Merrill 1-3
Year G/C Index [Doc. 264-14].
The Fund was rated yellow by Towers and green by FSOC from
the beginning of 2008 until the end of 2010 [Docs. 251-31 at 3;
251-38 at 7]. The Fund was rated green by both Towers and FSOC
for two quarters of 2007 and two quarters of 2012 [Docs. 251-31
at 3; 251-38 at 71. Towers' Fourth Quarter 2008 review indicated
the Fund's returns were less than its benchmarks at the 3- and 5-
year periods and that the Fund had lost to at one-year whereas
Krl
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 38 of 93
its benchmark had gained 5.80 [Doc. 264-10 at 4]. Towers' Fourth
Quarter 2009 review revealed the Fund's return to be below that
of its benchmark at three and five years, and since inception
[Doc. 264-16 at 41. Towers' Fourth Quarter 2010 review showed
the Fund's returns fell below its benchmarks at years three and
five and since inception; Towers' Fourth Quarter 2011 review
indicated the Fund was behind in its 5-year trailing return [Docs.
264-17 at 4; 264-18 at 10].
7. Prime Quality Money Market Fund
The Prime Quality Money Market Fund was in the Plan
throughout the Class Period until October 29, 2010 [Doc. 194 ¶
135; 196 ¶ 1351. Before the Class Period, Towers' Fourth Quarter
2004 review indicated the Fund's 1-, 3-, and 5-year returns were
behind those of its benchmark, and it was behind since inception
[Doc. 264-9 at 29]. Towers' Fourth Quarter 2005 review revealed
the same [Doc. 264-12 at 14]. At the Plan Committee's May 10,
2005 meeting, member Ken Houghton asked about the Fund's
performance relative to its benchmark and "commented that the
negative performance had to be driven by the differences in fees
paid by SunTrust versus our peers"; a RidgeWorth representative
said he would investigate further [Doc. 266-5 at 3].
37
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 39 of 93
The Prime Quality Money Market's benchmark was iMoneyNet
First Tier Money Fund Average [Doc. 265-23].
At one point during the Class Period, the Plan Committee had
planned to transfer monies from the Prime Quality Money Market
Fund to a different RidgeWorth money market fund with lower fees.
This planned change arose out of an earlier email exchange. On
January 4, 2008, Leilani Fountaine, a First Vice President of
SunTrust Bank, emailed George Smith, a RidgeWorth employee,
stating "it was brought to [her] attention that the [Prime
Quality Money Market Fund] used as an investment vehicle for this
plan has a minimum charge of 53 [basis points]" [Doc. 266-6 at
51. Fountaine went on to say that she "wonder[ed] if we should
consider discussing with the Committee the possibility of using
the institutional [money market] fund, with a 17 [basis points]
charge" [Id.]. She noted it may be necessary to change the name
of the institutional money market fund, but that "it would be a
small inconvenience if participants could pick up 39 [basis
points] . . . especially in this market!!" [Id.]. George Smith
responded on January 14, 2008, to ask whether there were "large
amounts of cash in each account" because there was typically a
"$10 million minimum, which is probably why we have not done it
in the past" [Id. at 4]. Leilani confirmed the amounts in the
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 40 of 93
Prime Quality Money Market Fund and added that "[i]n light of the
`investigation' of STI by a law firm regarding our policy of
depositing the match into our own stock, I think that we should
look closely at our reasoning behind continuing to offer a higher
fee [money market fund] to our own participants (who pay these
expenses)" [Id.]. After discovering there was "no reason not to
move [from the Prime Quality Money Market Fund to the
Institutional Cash Money Market Fund] at all," Fountaine indicated
that "[n]ow we just have to get the Plan Committee to approve the
change and we will all benefit!" [Id. at 2]. RidgeWorth employee
George Smith forwarded the email exchange to fellow RidgeWorth
representative Ashi Parikh with a message stating that "Leilani
began investigating why we cannot use the institutional cash fund
vs prime quality fund for the 401(k), with lower fees being the
primary reason . . . . Based on the responses below, it looks
like it is not a problem" [Id.]. Parikh forwarded the email to
others and wrote, "[t]his email trail may have some minor
implications to our P&L" [Id.]. In his deposition, Parikh
indicated that his statement meant that if this change--from the
Prime Quality Money Market Fund to the Institutional Cash Money
Market Fund--were made with the Plan, he would need to "redo [the]
39
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 41 of 93
forecast because there might be a difference in the fees SunTrust
receives" [Doc. 263-4 at 188:21-189:171.
At the Plan Committee's August 25, 2008, meeting, member and
Defendant Donna Lange presented the recommendation to move funds
from the Prime Quality Money Market Fund to the Institutional
Cash Money Market Fund, which had lower fees [Docs. 252-32 at 2;
251-46 at 5]. Upon motion, the Plan Committee approved a mapping
of funds from the former to the latter [Doc. 251-46 at 5-6].
However, at the September 30, 2008, Plan Committee meeting, Lange
recommended the decision be revoked due to SunTrust's decision to
participate in a Treasury Department program that would ensure
certain money market funds did not fall below a value of $1.00
per share [Doc. 252-33 at 3]. Under the program, "only those
monies invested in the Prime Quality Money Market Fund as of
September 19th would qualify for the program," so moving the funds
to the Institutional Cash Management Fund would result in the
loss of the government $1.00 per share guarantee [Id.]. The
Committee agreed not to map the monies and executed a resolution
"by unanimous written consent" to memorialize the decision on
September 30, 2008 [Doc. 252-34 at 1-2].
In the Second Quarter 2010, the Fund's management changed
from RidgeWorth to Federated Investors, Inc., and the Fund was
40
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renamed the Federated Prime Obligations Money Market Fund [Doc.
252-15 at 3] . 14 The Fund was not rated by the FSOC, but it was
rated by Towers [Docs. 251-31 at 3]. Towers gave the Prime
Quality Money Markey Fund a green rating from Second Quarter 2007
until Second Quarter 2009, and again from Fourth Quarter 2010
until Second Quarter 2012 [Docs. 251-31 at 3; 251-38 at 7].
The Fund's benchmark may have changed during the Class
Period. According to a 2003 Investment Policy Statement draft
for the Plan, the Fund's benchmark was the iMoney Net First Tier
Money Fund Average [Doc. 251-20 at 6]. The Towers Investment
Performance Report for First Quarter 2006, however, lists the 3
Month Treasury Bill Index as the Fund's benchmark [Doc. 252-30 at
5]. The minutes of the May 15, 2006, Plan Committee meeting
stated that "it was determined that the I-Money is the benchmark
for the fund," and that Towers would correct the benchmark, which
would "reflect a more favorable variance" [Doc. 252-31 at 2].
Towers made this change in subsequent reports [Doc. 252-4 at 41.
8. International Equity Index Fund
The International Equity Index Fund was in the Plan
throughout the Class Period [Doc. 252-35 ¶ 5]. The Fund was
14 The Court will refer to the Fund herein as the Prime Quality Money Market Fund.
41
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rated green by Towers and FSOC from Second Quarter 2007 until
First Quarter 2008 [Doc. 251-31 at 3]. The Fund was then rated
either yellow and green, or "double yellow" by both Towers and
FSOC, through First Quarter 2010 [Doc. 251-31 at 3; 251-38 at 7].
Starting at Second Quarter 2010, the Fund was rated yellow by
Towers and red by FSOC until Second Quarter 2012 [Doc. 251-38 at
7].
The Fund's benchmark was MSCI EAFE GDP [Doc. 265-23].
According to John Floyd, former head of SunTrust's Strategic
Allocation Solutions Group,
[m]ost [international] index funds are capitalization weighted, which means that whenever the capitalization of the [country] is [sic] represents . their proportional share of the index fund. . . . The problem you can get into is that you can get an overweight country, something called country risk in international investing. . . . So if you did not weight by [gross domestic product], you could end up with an excessive concentration in single countries. By weighting by [gross domestic product] . . . [the International Equity Index Fund was able] to spread the risk better [Doc. 251-11 at 94:14-95:7].
Floyd further indicated that the Fund, which was passively
managed, had fees equal to those of the actively-managed Fidelity
Advisor Diversified International Fund [Doc. 263-5 at 99:23-
101:4]. Plan Committee member Ken Houghton confirmed that the
42
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Fund's expense ratio was within the top five percent of the most
expensive funds for its class [Doc. 262-17 at 128:18-129:1].
At its March 1, 2010 meeting, the Plan Committee--after
Towers presented its 2009 Investment Performance Review--noted
that the Fund "doesn't correlate to its benchmark and as a double
yellow will continue to be monitored" [Doc. 265-24 at 31. The
Investment Sub-Committee's recommendations for Fourth Quarter 2010
note that though the Fund "does not fully replicate the index,"
"[t]here are no options currently available to reduce this
volatility" and that "[t]here are no concerns related to style,
process, etc. and the fund continues to be an appropriate option
going forward" [Doc. 252-17 at 2]. At the February 24, 2011, Plan
Committee meeting, a Towers representative noted that the
International Equity Index Fund's manager "does not try to fully
replicate the index" and that there had been "a lot of volatility
from December 31[, 2010,] to January 3[, 2011,1 with pricing that
corrected itself in the first quarter of 2011" [Doc. 252-9 at 3].
Towers' Fourth Quarter 2011 Investment Performance Review
indicated that the International Equity Index Fund's returns were
below that of its benchmark, MSCI EAFE GDP, at 1, 2, 3, 5, and 10
years, and annually since 2009 [Doc. 264-18 at 56].
MR]
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 45 of 93
D. Plan Committee Conduct Regarding Non-Proprietary Funds
At the May 10, 2005, Plan Committee meeting, John Floyd of
SAS presented active "international fund options" for the Plan,
discussing "finalist candidates," one of which was a propriety
fund [Doc. 253-12 at 3]. Floyd recommended a non-proprietary
option--the Bernstein International Fund—for strong consideration
because it was less expensive, had "performed well during the
tough periods, and "had some emerging market exposure" [Id.]. The
Plan Committee approved the addition of the Bernstein
International Fund to the Plan lineup [Id.].
In September 2006, the Plan Committee met and discussed the
addition of a target date fund to the Plan as a default investment
option [Doc. 253-2 at 3-4]. John Floyd of SAS presented three
options; one option was proprietary--the STI Life Vision Target
Date funds, but the Investment Sub-Committee recommended a
different option--the T. Rowe Price Target Date Fund--over the
proprietary option because, among other reasons, it had been in
existence the longest of the three options and had lower fees
[Id.]. The Plan Committee approved the addition of the T. Rowe
Price Fund as an investment option for the Plan [Id. at 41.
On February 20, 2008, a SunTrust actuary who assisted the
Plan Committee, Jim Pisano, emailed Plan Committee member Ken
HE
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Houghton information regarding investments in the Plan [Doc. 253-
3 at 2]. His message noted that the "Lazard [Mid-Cap
Institutional Fund] was a big concern and Randy [Cusick of Towers]
recommended action based on fundamental process issues (lack of
confidence, sell discipline is off, stock picks are wrong, account
churning, etc.)" [Id.]. Pisano further noted there was "[s]ome
concern expressed if we immediately take action on a non-
proprietary fund as compared to the drawn out process taken with
our own funds" [Id.]. Cusick, however, said the problems with
the Lazard fund were "significant enough that not taking action
could present a problem" and that they "interviewed the fund
manager already and still have a problem with the fund" [Id.].
Shortly thereafter, on February 25, 2008, Cusick discussed
Lazard's poor performance at a Plan Committee meeting, noting that
the Lazard fund had "significantly underperformed against the
benchmark" and that its managers "made significant bets on
investments that were negatively impacted by the sub prime
industry" [Doc. 253-4 at 3]. The Lazard Fund had received a
double red rating in the Fourth Quarter 2007 and First Quarter
2008 [Doc. 264-23 at 3]. Cusick stated "serious concerns with
the Lazard fund relating to style drift . . . , an impaired
process, leadership change, poor self discipline[,] and a tendency
45
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for them to `fall in love' with their losers (i.e. double down)"
[Doc. 253-4 at 3]. SunTrust employee Diane Schmidt, who had
expertise in investments, recommended the Fund's removal [Id.].
The Plan Committee subsequently voted to remove the Lazard Mid-
Cap Institutional Fund from the Plan [Id. at 4].
On March 10, 2008, the Investment Sub-Committee met "to
discuss the replacement of the Lazard Mid-Cap [Institutional F]und
as approved by the Benefits Plan Committee on February 25" [Doc
253-5 at 3]. In the meeting, the Sub-Committee discussed
identifying "the reason for change and why this is different from
previous issues involving poor fund performance"; the reasons
noted included "[f]undamental concerns above and beyond anything
we have seen to date regarding management of the fund, style
drift, poor sell discipline, etc. [which] place[] significant
fiduciary risks that require quick action in this case" [Id.].
The Sub-Committee was also noted to have discussed whether to
keep the Mid-Cap Equity Fund and "map participants there," but
"[t]he Committee decided it would be prudent to offer a choice of
Mid-Cap funds" [Id.]. The Sub-Committee ultimately recommended
that the Lazard fund be replaced with a "mid-cap pure index fund"
and asked Diane Schmidt to provide "additional pure index options
in the Mid-Cap space to be sure our due diligence process is
M
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 48 of 93
complete and we choose the best fund possible" [Id. at 4] . Schmidt
provided three alternatives to the Lazard fund to the Sub-
Committee in April 2008, none of which were proprietary funds
[Docs. 253-6 at 2; 253-7 at 3]. The Sub-Committee considered the
alternatives and chose to recommend the Vanguard Mid-
Capitalization Index Fund [Docs. 253-6 at 2; 253-7 at 21. Plan
Committee member Ken Houghton stated in his deposition that "if a
proprietary fund had done the kind of things that the Lazard fund
had done, it would have been removed" [Doc. 253-8 at 205:2-206:9].
In comparing the Lazard fund to the proprietary Capital
Appreciation Fund, Houghton stated that the Capital Appreciation
Fund "had nothing like [what was happening with the Lazard fund]
going on at the time" [Id.].
In September 2008, Plan Committee member Donna Lange received
an email from a SunTrust employee and Plan participant asking the
Plan Committee to consider adding a Government Bond Fund to the
Plan [Doc. 253-9 at 2]. Lange then sought potential "safe haven"
Government Bond Fund candidates for the Investment Sub-Committee
to review; thus, Alan McKnight of SunTrust Institutional Advisors
was asked to conduct a search for fund alternatives "that [Plan]
participants would consider a safe haven" [Docs. 253-9 at 2; 252-
33 at 3]. McKnight told the Plan Committee on September 30,
47
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2008, that "funds that fit this criterion would typically have a
significant portion of their portfolio invested in Treasury Bills"
[Doc. 252-33 at 3]. Later that day, Paul Robertson, the President
of StableRiver Capital Management LLC, emailed Donna Lange
indicating he had been asked to do so by McKnight [Doc. 253-10 at
31. As requested, Robertson provided information regarding
RidgeWorth's U.S. Treasury Money Market Fund [Id.]. Robertson
indicated that, although there was capacity in that fund, he
instead recommended the RidgeWorth Institutional U.S. Treasury
Securities Money Market Fund for the Plan [Id.]. However, in
October 2008 the Plan Committee instead added non-proprietary
Dreyfus Institutional Reserves Treasury Prime Fund as a Plan
option [Doc. 253-11 at 2].
At its February 27, 2009, meeting, the Plan Committee
"discussed the Dreyfus Small Cap [Value Fund] at great length" due
to its extended underperformance, as reported by a Towers
representative [Doc. 251-47 at 3]. The Committee expressed
concerns about the Fund due to management changes, "removal of
the fundamental overlay strategy, and a consistent level of risk
without the appropriate returns" [Id.]. The Plan Committee
decided "it was appropriate to take a deeper look at [the] fund"
[Id.]. At this same meeting, a member of the Investment Sub-
8;
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Committee presented the Sub-Committee's recommendations for
replacing the Dreyfus Small Cap Value Fund [Id. at 41. The Plan
Committee discussed four potential alternatives--including one
proprietary RidgeWorth fund--and agreed to recommend one of the
other, non-proprietary options, the Dreyfus-Boston Company Small
Cap Value Fund, to replace the Dreyfus Small Cap Value Fund [Id.].
At the February 27, 2009, Plan Committee meeting, a member
of the Investment Sub-Committee presented the Sub-Committee's
recommendations regarding the underperforming Bernstein
International Fund, a non-proprietary, active international fund
that had been added to the Plan lineup in 2005 [Doc. 251-47 at
31. All three replacement options considered were non-
proprietary, and the Plan Committee voted to replace the Bernstein
International Fund with one of the options, the non-proprietary
Mainstay International Fund [Id. at 4].
E. Plan Committee Conduct Regarding Potential ERISA Litigation Related to the Plan
At the Plan Committee's February 25, 2008, meeting, Steve
Castle "discussed the letter regarding Law Firm `Investigations'
of [the Plan] . . . . Mr. Castle spoke to several recent incidents
where 401(k) Plans were under investigation based on alleged
breaches of fiduciary responsibility" [Doc. 263-33 at 5]. Castle
noted that "[t]he claims against other employers were based on
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 51 of 93
the premise that employer stock is an imprudent investment based
on high risk investments made by senior management who are also
acting in the capacity of plan fiduciaries" [Id.]. Following
Castle's comments, Plan Committee chair Mark Chancy "provided an
overview of the steps taken by the Committee to ensure that
employees have been given ample opportunity to diversify out of
Company stock" [Id.]. As previously stated, Mary Lee filed an
administrative claim on behalf of the Plan for alleged ERISA
violations on April 24, 2008. A few weeks later, on May 15, 2008,
a sub-committee of the Plan Committee met to discuss the claim
[Doc. 266-9 at 21.
During a July 15, 2008, interview with lawyers Mark Meudeking
and Ian Taylor of DLA Piper--who were hired to investigate the
administrative claim filed by Mary Lee in 2008--SunTrust ERISA
attorney Steve Castle was noted to have said that "he was
concerned that the Committee was not adequately monitoring
investments" [Doc. 263-26 at 3]. However, Ian Taylor's notes
from a later telephone call with Castle indicate "he did not
recall making such a statement" [Id. at 4].
F. The Plan's 2012 Vanguard Index Fund Overhaul
At the November 15, 2011, Plan Committee meeting, one member
noted it was "time to take a close look at all the funds in [the
50
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 52 of 93
Plan], given that the pension plan is being frozen" [Doc. 253-14
at 3]. Another Plan Committee member, Tom Panther, recommended
"a full style box review in light of an `all' defined contribution
approach for delivering retirement benefits" [Id.]. The Plan
Committee asked Towers to provide information on "various
approaches and best practices being utilized by all
industries as a whole as well as approaches being used by the
financial services sector" [Id.].
A new consulting engagement with Towers and the Plan
Committee--sent by James Pisano to some members of the Plan
Committee for approval--proposed to engage Towers for a review of
the Plan's "fund line-up, types of investments, best practices,
concentration concerns," etc. [Doc. 253-15 at 2-3]. At the Plan
Committee's March 13, 2012, meeting, a Towers representative
presented the "SunTrust Banks, Inc. 401(k) Plan Investment
Structure Review" and recommended that the Plan Committee
"establish a philosophical position on the governance structure
of the plan, either a hands on or active approach vs. a dialed
back [or] passive approach" [Doc. 253-16 at 3]. The Towers
representative noted a "trend away from a 'style box' approach to
a target date approach" [Id.]. The Plan Committee recommended
the formation of a sub-group to "establish SunTrust Bank's
51
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 53 of 93
philosophy and guiding principles related to retirement savings
and discuss the various options available in more detail" [Id. at
3-4].
At the July 19, 2012, Plan Committee meeting, a member
presented the analysis and recommendations by the aforementioned
sub-group regarding the Plan [Doc. 253-18 at 3]. Some of the
issues the sub-group researched and reviewed included whether
SunTrust stock should continue to be offered as an investment
option and whether the "investment menu [should] be modified to
better reflect a 'broad set of core investment alternative"' [Doc.
253-19 at 2]. These items were at issue because of the freeze on
SunTrust's Pension Plan, the "[p]otential legal and fiduciary risks
that employers face when offering 401(k) plans which include their
own stock and/or proprietary funds," and to "[e]nsure that all
investment and program design elements are aligned with the
mission of the 401 (k) program" [Id. ] . The Plan Committee approved
the sub-group's recommendation of using index or passive funds for
all of the Plan's investment alternatives [Doc. 253-18 at 3].
Following that meeting, the sub-group reviewed available
index funds from Fidelity with Towers and met with other SunTrust
resources to "gain insight and perspectives of the fund families
[under consideration] from our client experience" [Doc. 253-21 at
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Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 54 of 93
31. After this, the sub-group recommended using Vanguard index
funds for the Plan [Id.]. At its August 10, 2012, meeting, the
Plan Committee approved this recommendation [Doc. 253-20 at 2].
After a "due diligence visit" with Vanguard, a member of the Plan
Committee reported that "[o]verall the meeting with Vanguard was
positive and the team believes that Vanguard is well positioned
to provide 401(k) investment funds for the [Plan]" [Doc. 253-22
at 3]. All investment options in the Plan were replaced by
Vanguard funds effective January 2013 [Docs. 194 IT 14; 196 IT 16].
II. MOTIONS TO EXCLUDE EXPERT OPINIONS
Before turning to Defendants' Motion for Summary Judgment,
the Court will first address the parties' motions to exclude expert
opinions. The Federal Rules of Evidence require expert testimony
be offered by a witness "who is qualified . . . by knowledge,
skill, experience, training, or education," and that:
(a)the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b)the testimony is based on sufficient facts or data; (c)the testimony is the product of reliable principles and methods; and (d) the expert has reliably applied the principles and methods to the facts of the case.
Fed. R. Evid. 702. In accordance with Rule 702, the Court may
thus admit expert testimony if: (1) the witness is "qualified as
an expert," such that he can testify competently with regard to a
53
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 55 of 93
matter at issue; (2) the testimony is reliable and supported by
the expert's knowledge in the relevant discipline; and (3) the
testimony is relevant, in that it assists the trier of fact to
understand or come to a conclusion regarding a material issue.
City of Tuscaloosa v. Harcros Chems., Inc., 158 F.3d 548, 562
(11th Cir. 1998). Moreover, although an expert "may testify as
to his opinion on an ultimate issue of fact[,]" "[a]n expert may
not . . . merely tell the [factfinder] what result to reach" or
"testify to the legal implications of conduct." Montgomery v.
Aetna Cas. & Surety Co., 898 F.2d 1537, 1541 (11th Cir. 1990)
(citation omitted).
The Court also conducts its analysis with the understanding
that the "general approach" of the Federal Rules is to "relax[]
the traditional barriers to opinion testimony." Daubert v.
Merrell Dow Pharms., Inc., 509 U.S. 579, 588 (1993). Moreover,
" [t] hose barriers are even more relaxed in a bench trial situation,
where the judge is serving as factfinder . . . . There is less
need for the gatekeeper to keep the gate when the gatekeeper is
keeping the gate only for himself." United States v. Brown, 415
F.3d 1257, 1268-69 (11th Cir. 2005). And "[d]eterminations of
the admissibility of evidence are left to the broad discretion of
the district court . . . ." Montgomery v. Aetna Cas. & Surety
Co., 898 F.2d 1537, 1541 (11th Cir. 1990) (citation omitted).
54
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A. Defendants' Motion to Exclude Opinion 5 of Plaintiffs' Expert Dr. Steve Pomerantz, Ph.D. [Doc. 2501
Defendants move to exclude Opinion 5 of Plaintiffs' damages
expert, Dr. Steve Pomerantz. Defendants make two arguments in
favor of excluding Dr. Pomerantz's Opinion 5: (1) Opinion 5 is
unreliable because he did not review the necessary, relevant
documents necessary to form an informed, factually-substantiated
opinion; and (2) Opinion 5 is irrelevant because it evaluates the
Affiliated Funds all together as opposed to individually.
Defendants' first argument, that Dr. Pomerantz's Opinion 5
is unreliable, targets the following statement: "I do not believe
a prudent and loyal fiduciary would have selected or retained the
Affiliated Funds in the Plan" [Doc. 250-2 at 22]. Defendants
argue that this opinion necessarily involves an evaluation of
Defendants' monitoring process, about which Dr. Pomerantz admits
he is unfamiliar. Specifically, Defendants argue Dr. Pomerantz's
opinion is factually baseless because he did not review the Plan
Committee's meeting minutes (with the exception of minutes from
one meeting) or any other evidence of the Plan Committee's
monitoring process for the Affiliated Funds. Essentially,
Defendants contend Dr. Pomerantz lacked the necessary knowledge
of the context surrounding the Plan Committee's decisions and,
therefore, his opinion should be excluded.
55
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Plaintiffs, in response, agree with Defendants that "in
determining whether a breach of fiduciary duty occurred, the focus
should be on whether, at the time of the decision, Defendants
employed a prudent process in making their decisions" [Doc. 255
at 10]. Moreover, Plaintiffs agree that "any conclusions Dr.
Pomerantz would make regarding the prudence of the specific
process employed by the Defendant fiduciaries would be speculative
" [Id.]. Plaintiffs contend, however, that Dr. Pomerantz's
opinion is not about the prudence of Defendants' processes, but
instead the prudence of "the decisions that resulted from those
processes" [Id. at 11]. Plaintiffs differentiate between these
two concepts--the prudence of Defendants' processes versus the
prudence of Defendants' decisions following those processes--as
procedural and substantive prudence, respectively. Thus,
Plaintiffs contend Dr. Pomerantz's opinion was not based on
Defendants' processes at all, but rather whether the decision
they made after following their processes was, in itself,
reasonable and prudent.
In their reply, however, Defendants point out that
Plaintiffs' characterization of Dr. Pomerantz's opinion--that it
is an opinion on Defendants' substantive prudence--cannot be
accurate when viewed in light of Dr. Pomerantz's deposition
56
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testimony. Defendants base this assertion on several deposition
statements by Dr. Pomerantz:
A: Well, I don't think that [the Affiliated Funds'] selection in this plan was the result of a prudent process or a loyal process, and I don't think that a loyal or prudent fiduciary would have necessarily selected this slate [of funds]. Q: Why don't you think that their selection was the result of a prudent and loyal process? A: So what I'm expecting is some justification for the Committee basically ignoring those hundreds of alternatives and selecting the slate that they did. I don't see any evidence of that. All I see is what I think the Committee's process is based on and my attempt to look at those criteria and look at the mutual fund universe in light of those criteria, and I see many superior alternatives and I see no reason why all of those superior alternatives were ignored. And that's the basis of my opinion.
And then what I am referring to here is the observation that there were and continue to be many superior alternatives to the Affiliated Funds, and what I perceive of as the lack of the defendants' explanation for why they are choosing an inferior fund [Doc. 254-13 at 170:11-173:6].
In short, the Court agrees with Defendants that, according to Dr.
Pomerantz's own deposition testimony, his Opinion 5 is based on
his conceptions of the Plan Committee's monitoring processes, or
lack thereof. Because Dr. Pomerantz admits his opinion is based
on the Plan Committee's monitoring processes--yet also admits he
is uninformed regarding those processes--the Court agrees with
Defendants that his Opinion 5 is unreliable and should be
excluded. Accordingly, Defendants' Motion to Exclude Opinion 5
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of Plaintiffs' Expert Dr. Steve Pomerantz, Ph.D., is GRANTED [Doc.
250] .15
B. Plaintiffs' Motion to Exclude the Expert Reports of Defendants' Experts Dr. John Minahan and Dr. Bruce Stangle [Doc. 269]
1. Dr. John Minahan's Expert Reports
Plaintiffs' motion first seeks to exclude the expert report
of Defendants' expert Dr. John Minahan. Defendants offer Dr.
Minahan as an expert regarding Defendants' monitoring process for
the SunTrust Banks, Inc. 401(k) Plan's ("the Plan") investments
[Doc. 270 at 51. Plaintiffs move to exclude Dr. Minahan's report
on two grounds: (1) Dr. Minahan's opinions are based on
insufficient facts and data, and (2) Dr. Minahan's opinions are
not the result of reliable methods [Doc. 269-1 at 8-15].
Plaintiffs argue Dr. Minahan's opinions are based on
insufficient facts and data because he chose to be "willfully
blind" to "all events occurring prior to the inception of the Class
Period, including the initial selection of the Affiliated Funds"
[Id. at 9]. Plaintiffs further contend Dr. Minahan's failure to
review documents and minutes from before the Class Period renders
15 The Court having found Dr. Pomerantz's Opinion 5 unreliable and thus inadmissible, it need not address Defendants' secondary argument that the opinion is also irrelevant.
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 60 of 93
his opinions unreliable because he is essentially drawing
conclusions "without critical data" [Id. 10].
The Court is unpersuaded by Plaintiffs' argument. For Dr.
Minahan to opine on Defendants' monitoring process during the
Class Period, it is not necessary for him to have reviewed how
the Plan investments were monitored prior to the Class Period.
Plaintiffs cite cases that purportedly support their argument,
but as Defendants aptly point out, these cases merely held
documents from outside a class period were discoverable. See
David v. Alphin, No. 3:07-cv-11, 2010 WL 1404722, at *5-6
(W.D.N.C. Mar. 30, 2010) (finding pre-class period documents were
discoverable because they met the liberal relevance standard for
discovery under Rule 26); see also Beesley v. Int'1 Paper Co., No.
06-703-DHR, 2008 WL 207537, at *1 (S. D. Ill. Jan. 24, 2008)
(finding documents pre-class period were discoverable and noting
that "the statute of limitations does not necessarily provide a
cut-off date for discovery" because "the scope of discovery is
defined by relevance" and "[i]nformation need not be admissible
to be relevant"). These cases fail to establish that experts
evaluating fiduciaries' investment monitoring processes during a
class period must review documents outside the class period--
specifically, from when the funds were selected--for their
59
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 61 of 93
opinions to be admissible.16 The object of Dr. Minahan's report
is to evaluate Defendants' investment monitoring processes during
the Class Period; it is understandable and perfectly acceptable,
then, that his document review would be limited to that time
period. Plaintiffs' argument to the contrary is unavailing.
Plaintiffs also give a few examples of allegedly unconfirmed
or "demonstrably erroneous" facts upon which Dr. Minahan relied
[Doc. 269-1 at 11-12]. However, it appears Plaintiffs' objection
primarily concerns Dr. Minahan's interpretation of--and the weight
he awarded--certain evidence [Doc. 269-1 at 11 (arguing that Dr.
Minahan should have "assigned little, if any, weight" to the letter
denying the original administrative claim in this case because it
was from one of the defendants and "no one can be an impartial
judge of his own conduct"). The Court finds these arguments go
to the weight that should be given to Dr. Minahan's report, not
its admissibility. That is, the Court agrees with Defendants
that these alleged shortcomings affect the persuasiveness of Dr.
Minahan's report, but not whether it should be admitted.
16 This is particularly true here, where the Court previously granted summary judgment as to Plaintiffs' Count VIII, which provided the strongest justification for the relevance of pre-Class Period documents.
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 62 of 93
Plaintiffs next argue Dr. Minahan's reports should be
excluded because they are not based on reliable methods because
he failed to consider alternative explanations for Defendants'
conduct [Tr. 269-1 at 13-15]. Namely, Plaintiffs argue Dr.
Minahan failed to consider that some of Defendants' conduct--for
example, removing one of the Affiliated Funds from the Plan--may
have been motivated by a desire to avoid litigation. "Plaintiffs
never explain why Defendants' subjective state of mind would have
any bearing on the prudence of their investment decisions, which
are evaluated under an objective standard" [Doc. 270 at 13].
Plaintiffs are correct that one of the factors for assessing
the reliability of expert testimony, according to Rule 702's
advisory committee notes, is whether the expert has adequately
accounted for obvious alternative explanations. However,
Plaintiffs fail to cite any cases suggesting Dr. Minahan was
responsible for even evaluating--let alone providing alternative
explanations for--Defendants' motives for their investment
monitoring processes. In fact, the cases Plaintiffs cite for
support are cases involving medical opinions, where the expert at
issue failed to provide any alternative explanations for the
plaintiff's injury. See Magbegor v. Triplette, 212 F. Supp. 3d
1317, 1328 (N.D. Ga. Mar. 16, 2016) (Cohen, J.); see also Claar
v. Burlington N. R.R. Co., 29 F.3d 499, 502-03 (9th Cir. 1994)
61
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(noting that the expert doctors failed to make "any effort to rule
out other possible causes for the injuries plaintiffs complain
of, even though they had admitted that this step would be standard
procedure before arriving at a diagnosis") (emphasis added).
Plaintiff argues that because Dr. Minahan found that
"documentary evidence . . . demonstrates that the Plan Committee
monitored all funds diligently and did not hesitate to remove an
STI Fund from the lineup when the circumstances indicated that
such action was appropriate," he was also required to consider
"alternative explanations" for this conduct by Defendants, such
as a motive to avoid litigation [Doc. 278-1 at 45]. But this
finding does not concern Defendants' motive in "diligently"
monitoring the investments; it merely summarizes what the facts
indicate Defendants did in Dr. Minahan's opinion. Even if the
conclusion referenced by Plaintiffs did concern Defendants'
motive, Dr. Minahan had no obligation to explain in his report
every possible motive supported by the evidence. Even if he did,
his failure to do so would be just one factor among many in
determining whether his report was based on reliable methods [Doc.
269-1 at 13 ("It is well settled that one of the factors courts
should consider in assessing the reliability of an expert's
methods is '[w]hether the expert has adequately accounted for
obvious alternative explanations."' (citing Ma v. Equifax Info
62
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Servs., LLC, 288 F. Supp. 3d 1360, 1365 (N.D. Ga. 2017)) (May,
J.)]. This would, even then, be insufficient to merit exclusion
of his reports, especially considering that the Court--not a jury-
-will serve as factfinder in any future trial. See Brown, 415
F.3d at 1268-69.
For these reasons, Plaintiff's motion is denied as to Dr.
Minahan's reports.
2. Dr. Bruce Stangle's Expert Reports
Next, Plaintiff argues the reports of Defendants' other
expert, Dr. Bruce Stangle, should be excluded. Plaintiffs
contend exclusion is warranted because (1) he is not qualified as
an investments expert; (2) his reports are not helpful to the
trier of fact because they contain "idiosyncratic standards"; and
(3) his rebuttal report regarding damages falls outside the scope
of Dr. Pomerantz's original report.
Plaintiffs first contend Dr. Stangle's reports should be
excluded because he has opined on five investment-related topics
--topics which fall outside his area of expertise. Plaintiffs
argue Dr. Stangle's education and experience, pertaining primarily
to economics, are not sufficiently tailored to the area of
investments. Plaintiffs contend Dr. Stangle's "only investment-
related experience is serving on a few boards of entities where
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investments were among the matters at issue, such as the 401(k)
plan of the company he co-founded [Doc. 269-1 at 18].
As Rule 702 makes clear, an expert may be qualified through
"knowledge, skill, experience, training, or education." Fed. R.
Evid. 702. Moreover, as a case cited by both parties indicates,
"courts liberally construe a witness's qualifications in favor of
expert status and consider gaps in a witness's qualifications a
matter for the jury to consider in determining what weight to
give to the testimony." Thomas v. Hubtex Maschinenbau GmbH & Cc
KG, No. 7 :06-CV-81 (HL) , 2008 WL 4371977, at *2 (M. D. Ga. Sept.
23, 2008).
Plaintiffs emphasize that Dr. Stangle's education and
experience are overwhelmingly in economics, not investments.
However, as the aforementioned indicates, Dr. Stangle has ample
experience in the area of investments. He has served on the
board of directors of both a large asset manager and a mutual
fund, which involved responsibilities such as "fiduciary
monitoring of fees, expenses, and relative investment performance
of the funds on our platform" [Id. ] . He also has served as a
fiduciary to his firm's 401(k) plan for "many years," on which he
"review[s] the financial performance of various fund offerings,
assessing fee levels for appropriateness, and ensuring that [the]
plan offers its participants a wide array of investment products"
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[Id. ] . The Court thus finds his experience as an economist is
sufficiently related to investments and the subject matter at
issue here. See Thomas, 2008 WL 4371977, at *2 (noting that "[a]
witness's qualifications must correspond to the subject matter of
his or her proffered testimony," but also that "[g]eneral knowledge
in a field . . . is normally sufficient to qualify a witness as
an expert in that field's specialties as well").
Plaintiffs next argue Dr. Stangle's initial report should be
excluded as unreliable and unhelpful to the trier of fact because
it uses undefined, meaningless phrases such as "economically
reasonable" and unclear standards such as "generally consistent
with" [Doc. 269-1 at 19-20]. The Court disagrees and finds Dr.
Stangle's initial report both helpful for the trier of fact and
sufficiently reliable. Regarding Dr. Stangle's conclusion that
the Affiliated Funds were "economically reasonable" investment
options, the Court finds his use of the word "economically" does
not disqualify his opinion from admission. As Defendants point
out, Dr. Stangle did explain this phrase in his deposition; he
explained that he was asked to evaluate whether the Affiliated
Funds were unreasonably included in the Plan, and he found they
were not and specifically noted they were "economically"
reasonable because he conducted his evaluation "from the
perspective of an economist" [Doc. 269-6 at 161:2-19). Thus, Dr.
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Stangle's use of this phrase does not merit exclusion of his
initial report. Neither does his use of the phrase "generally
consistent with," which Plaintiffs argue is an improperly
"nebulous concept[]" [Doc. 269-1 at 20] . To the extent this phrase
is vague, such imprecision may affect the weight given to Dr.
Stangle's report by the Court as factfinder. However, the Court
finds these few instances of purported vagueness in Dr. Stangle's
lengthy report do not merit its exclusion.
Finally, Plaintiffs argue for the exclusion of Dr. Stangle's
rebuttal opinion to the expert opinion of Defendants' expert Dr.
Steve Pomerantz. According to Plaintiffs, Dr. Stangle's rebuttal
opinion is outside the scope of both Dr. Pomerantz's opinion and
Dr. Stangle's own expertise. Specifically, Plaintiffs argue the
opinion improperly introduces new opinions at the rebuttal stage
and opines on the legal issue of the appropriate measure of
damages without being an expert on the law [Doc. 269-1 at 22-23].
Defendants contend Dr. Stangle's rebuttal report was a proper
critique of assumptions and supplied information upon which Dr.
Pomerantz operated in making his damages calculations [Doc. 270
at 21].
Under Federal Rule of Civil Procedure 26, rebuttal reports
are permissible "solely to contradict or rebut evidence on the
same subject matter" as the initial expert report. Fed. R. Civ.
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P. 26(a)(2)(D)(ii). The parties do not cite any case law on the
issue of whether Dr. Stangle's rebuttal report falls within the
"same subject matter" as Dr. Pomerantz's original expert report.
"Neither the Rules nor the Eleventh Circuit has defined or
explained the term ̀ same subject matter[,]"' but other courts have
construed it broadly. Northrup v. Werner Enterprise, Inc., No.
8:14-cv-1627-T-27JSS, 2015 WL 4756947, at *3 (M.D. Fla. Aug. 11,
2015) (collecting cases). Plaintiffs essentially contend that,
because Dr. Pomerantz was asked by them to perform specific
calculations, Dr. Pomerantz's report does not provide an opinion
as to what the appropriate damages calculation would be in this
case; he just conducted the requested "number crunching" [Doc.
269-1 at 22]. Thus, by opining on what the appropriate measure
of damages would be in this case, Dr. Stangle allegedly exceeded
the "same subject matter" scope required by Rule 26.
The Court disagrees. Although it is true that Dr. Pomerantz
does not explicitly offer an opinion on what the appropriate
measure of losses would be, the Court cannot ignore the
implication of Dr. Pomerantz's calculations; that is, in
performing the calculations requested by Plaintiffs, Dr.
Pomerantz endorsed their purported significance. Understandably,
then, Dr. Stangle's report attacks the assumption underlying Dr.
Pomerantz's report--one Dr. Pomerantz confirmed in his deposition
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--that his calculations would be an appropriate measure of damages
[Doc. 274-2 at 73 ("If the Court finds liability, then they would
hopefully be guided by these numbers to determine damages.")].
Thus, in light of this underlying assertion and the Court's view
that Rule 26's "same subject matter" standard should be broadly
construed, the Court will not exclude Dr. Stangle's report as
outside the scope of Dr. Pomerantz's expert report. For these
reasons, Plaintiffs' Motion to Exclude the Reports of Defendants'
Experts Dr. John R. Minahan and Dr. Bruce Stangle is DENIED [Doc.
269] .
III. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT [Doc. 251]
A. Legal Standard
The Court will grant summary judgment when "there is no
genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law." Fed. R. Civ. P. 56(a).
[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," which it believes demonstrate the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (citation
omitted). Once the movant has met this initial burden, the
opposing party must present evidence establishing a material issue
of fact. Id. at 325. The non-moving party must go "beyond the
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 70 of 93
pleadings" and present evidence designating "specific facts
showing that there is a genuine issue for trial." Id. at 324
(internal quotation marks and citation omitted).
To be material, a fact must be identified by the controlling
substantive law as an essential element of the non-moving party's
case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
"Genuine disputes are those in which the evidence is such that a
reasonable jury could return a verdict for the non-movant. For
factual issues to be considered genuine, they must have a real
basis in the record." Mize v. Jefferson City Bd. of Educ., 93
F.3d 739, 742 (11th Cir. 1996) (internal quotation marks and
citation omitted). "[M]ere conclusions and unsupported factual
allegations are legally insufficient to defeat a summary judgment
motion." Ellis v. England, 432 F.3d 1321, 1326 (11th Cir. 2005).
Moreover, the Local Rules specify that a respondent to a summary
judgment motion must directly refute the movant's facts with
specific citations to the evidence. Unless the respondent
"specifically informs the court to the contrary," the court will
"deem the movant's citations supportive of its facts." LR
56. lB (2) (a) (3) , NDGa.
In so reviewing the record, the Court must construe the facts
and make all reasonable inferences in favor of the non-moving
C.1
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party. Anderson, 477 U.S. at 255; Reese v. Herbert, 527 F.3d
1253, 1271 (11th Cir. 2008).
B. Discussion
Defendants move for summary judgment on Plaintiffs' remaining
claims on two grounds. First, Defendants argue Plaintiffs have
failed to adduce evidence that Defendants breached their duties
of loyalty or prudence to the Plan in monitoring and or failing
to remove Affiliated Funds [Doc. 251-1 at 10-24]. Second,
Defendants argue that even if a genuine issue of material fact
exists regarding whether Defendants breached their duties,
Plaintiffs cannot show any such breach proximately caused a loss
to the Plan [Id. at 24-29]. Plaintiffs, in response, contend
Defendants have failed to meet their burden at summary judgment
and that there is sufficient evidence of breach and loss causation
to create genuine issues of material fact and withstand
Defendants' motion.
ERISA fiduciaries operate under a "[p]rudent man standard of
care," which requires the fiduciary to discharge his duties to a
plan "solely in the interest of the participants and
beneficiaries"--for the exclusive purpose of providing them
benefits and "defraying reasonable expenses of administering the
plan"--"with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like
70
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capacity and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims." 29
U.S.C. § 1104(a).
1. Dutv of Lovalt
The duty of loyalty arises out of the fiduciary's statutory
obligation to act "solely" in the participants' and beneficiaries'
interest, exclusively to benefit them and defray reasonable
expenses. 29 U.S.C. § 1104(a). Defendants argue there are no
facts that could create a genuine issue of material fact as to
whether they acted disloyally in monitoring the Plan. The Court
disagrees. A fiduciary's actions, "taken together and viewed in
context, shed light on their motivations." Tussey v. ABB, Inc.,
850 F.3d 951, 957 (8th Cir. 2017). And a fiduciary's motives may
be questioned if "there [are] too many coincidences to make the
beneficial outcome for [the plan sponsor] serendipitous." See
id. at 958. Moreover, fiduciaries functioning amidst potential
conflicts of interest must execute their duties with caution to
avoid disloyalty. See Deak v. Masters, Mates & Pilots Pens.
Plan, 821 F.2d 572, 580 (11th Cir. 1987) (noting that "the
statutorily imposed fiduciary duty to act solely in the interest
of the participants and beneficiaries under ERISA requires
trustees who are officers or agents of a corporation . . . to act
with caution in areas of potential conflicts of interest").
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Here, the Court finds a genuine question of material fact
exists as to whether Defendants acted solely in the interest of
the Plan's participants and beneficiaries or, instead, acted for
the purpose of benefitting SunTrust and themselves. As officers
and employees of SunTrust, the plan sponsor and recipient of fees
paid by participants for the Affiliated Funds, the Plan Committee
Defendants faced an inherent conflict of interest: the interest
of benefitting SunTrust as their employer, which could in turn--
as Plaintiffs point out--financially benefit them, versus the
interest of benefitting Plan participants. As Defendants rightly
point out, however, this inherent conflict is insufficient to
evidence a breach of the fiduciary duty of loyalty. See Wildman
v. Am. Century Servs., LLC, 362 F. Supp. 3d 685, 701 (W.D. Mo.
2019) (noting that "a conflict of interest alone is not a per se
breach" and that "it is not disloyal as a matter of law to offer
only proprietary funds") (internal quotation marks and citations
omitted).
However, the Court finds additional evidence precludes
summary judgment as to the issue of the fiduciary duty of loyalty.
First, Defendants' differing treatment of the Affiliated Fund
versus non-proprietary funds--and acknowledgement thereof---
suggests Defendants may have prioritized benefitting SunTrust
over benefitting plan participants. Whereas the Plan Committee
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swiftly removed the Lazard Mid-Cap Institutional Fund when it
began to perform poorly, the Plan Committee allowed the
proprietary Capital Appreciation Fund, despite multiple quarters
of double red ratings, to linger in the Plan with the expectation
that its performance would improve. Similarly, the Mid-Cap
Equity Fund was rated double red for six quarters between 2007
and 2009 yet remained in the Plan until 2010. Moreover, the
email sent to a Plan Committee member after an Investment Sub-
Committee meeting noting "[s]ome concern expressed if we
immediately take action on a non-proprietary fund as compared to
the drawn out process taken with our own funds" further suggests
a pattern of allowing proprietary funds to underperform for
extended periods, particularly compared to non-proprietary funds,
at the expense of the Plan.
The 2006 pension plan PowerPoint presentation for the Plan
Committee acknowledging that "[s]hift of assets to outside[, or
non-proprietary,] funds represents tangible loss of revenue to
the Company, based on expense ratios of funds utilized" also
suggests improper motives by Defendants [Doc. 263-28 at 5].
Although Defendants are correct that this presentation concerned
SunTrust's other employee benefit plan--the pension plan--the
presentation's acknowledgement of considering SunTrust's bottom
line in determining which funds to include in one of SunTrust's
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plans reasonably raises a question as to whether such
considerations bled over into the Plan Committee's decision-
making for the 401(k) Plan.
Defendants suggest direct evidence of disloyalty, or
Defendants' subjective intent to benefit SunTrust, is necessary
to withstand summary judgment. The Court disagrees and finds
enough circumstantial evidence exists to create a genuine issue
of material fact as to whether Defendants breached their duty of
loyalty to the Plan.
2. Duty of Prudence
The duty of prudence arises out of the fiduciary's statutory
obligation to act with the "care, skill, prudence, and diligence"
with which a prudent man under the then-existing circumstances
would act. 29 U.S.C. § 1104(a). "A plaintiff may allege that a
fiduciary breached the duty of prudence by failing to properly
monitor investments and remove imprudent ones." Tibble v. Edison
Int'l, 135 S. Ct. 1823, 1829 (2015). Courts evaluate alleged
breaches of the duty of prudence using an objective standard and
"focusing on whether the fiduciary employed appropriate methods
to reach an investment decision" under the prevailing
circumstances. New Orleans Em-o'rs Intl Lonashoremen's Assn
AFL-CIO Pension Fund v. Mercer Inv. Consultants, 635 F. Supp. 2d
1351, 1372 (N.D. Ga. 2009) (Evans, J.) (citing Meinhardt v.
W,
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 76 of 93
Unisys. Corp., 74 F.3d 420, 434 (3d Cir. 1996)). The Department
of Labor promulgated a regulation clarifying a fiduciary's
investment duties under ERISA's standard of care, stating in part
that a fiduciary must "`give[] appropriate consideration to those
facts and circumstances that, given the scope of such fiduciary's
investment duties, the fiduciary knows or should know are relevant
to the particular investment or investment course of action
involved."' Id. (quoting 29 C.F.R. § 2550.404a-1). The issue
is "whether [Defendants] considered [the] options and came to a
reasoned decision." See Wildman, 362 F. Supp. 3d at 704.
First, Defendants contend the Plan Committee's monitoring
process was prudent, "regular, robust, and objective" [Doc. 251-
1 at 13]. They argue this is evidenced by the Plan including
"roughly equal numbers of proprietary and non-proprietary funds"
during the Class Period; the Plan Committee adding ten non-
proprietary funds to the Plan during the Class Period; and the
Plan Committee selecting non-proprietary funds over proprietary
funds "[o]n multiple occasions" [Id. at 15]. That the Plan
Committee selected some non-proprietary funds during the Class
Period, however, does not preclude a finding of imprudent
monitoring process for the Plan's Affiliated Funds. Defendants
next contend the opinions of Plaintiffs' expert Samuel Halpern
cannot qualify as evidence of an imprudent process. The Court
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disagrees. Halpern's opinions that the Affiliated Funds'
performance and fees, and the Plan Committee members' structural
conflicts, contributed to the imprudence of the Funds' retention
are appropriate considerations in determining whether Defendants
breached their duty of prudence. 17 See, e.g., Mercer Inv.
Consultants, 635 F. Supp. 2d at 1376 (evaluating a fund's
performance as part of determining whether its retention was
prudent).
Defendants then argue no genuine question of material fact
exists as to whether Defendants made imprudent monitoring
decisions with respect to each of the Affiliated Funds because
Plaintiffs have failed to produce evidence of imprudence for the
individual funds. Defendants are correct that Plaintiffs point
to some generalized evidence to show a genuine question of
material fact exists as to Defendants' prudence.18 Plaintiffs
17 The Court agrees with Defendants, however, that the initial selection of the Affiliated Funds is not relevant in determining whether Defendants breached their fiduciary duties during the Class Period. 18 Defendants challenge the use of generalized evidence by Plaintiffs to show imprudence based on language in the Court's June 27, 2018 order [Doc. 222]. The Court noted that it "disagree[d] with Plaintiffs' statement that generalized proof can establish whether Defendants breached their fiduciary duties to the Plain in offering all of the Affiliated Funds[,]" and that "[i]t would be necessary for Plaintiffs to address whether Defendants, in maintaining each of the eight Affiliated Funds in the Plan breached their fiduciary duties to the Plan [Id. at 7]. This statement did not render irrelevant generalized evidence of
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note that, according to their expert Steve Pomerantz's
conclusions, "there were numerous better performing, lower cost,
and more highly rated funds (by Defendants' own rating methods)
available that were comparable to each of the Affiliated Funds"
[Doc. 262 at 22 (citing Pomerantz's report, Doc. 254-10 at 5-9)]
Nevertheless, Plaintiffs contend, Defendants did not "objectively
consider the many specific, competing alternative unaffiliated
funds" [Doc. 262 at 23].
Plaintiffs next point out that all of the Affiliated Funds
but the International Equity Index were actively managed, and
that--as their expert, Halpern, indicates--Defendants "violated
reasonable standards of investment due diligence" by failing to
determine whether "`it was reasonable to expect a given actively
managed Affiliated Fund to generate investment performance
superior to alternative, lower cost, passively-managed options"'
[Id. at 24 (quoting Halpern's expert opinion)]. Plaintiffs also
indicate that Defendants failed during the Class Period to compare
the Affiliated Funds' performance to that of alternatives, in
violation of the Plan's investment policy statement [Id. at 24].
imprudence by Plaintiffs; rather, it clarified that such generalized proof would be insufficient, and specific proof of imprudence--in addition to any generalized evidence--would be necessary.
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The Court agrees with Plaintiffs that this generalized
evidence is probative of whether Defendants prudently monitored
the Affiliated Funds during the Class Period. Although the fact
that most of the Affiliated Funds were actively managed would
not, in and of itself, typically be evidence of imprudence,
Plaintiffs' additional allegation that Defendants also failed to
analyze and compare the Affiliated Funds to other funds to
evaluate their appropriateness makes their argument more
probative of Defendants' degree of prudence. See Henderson v.
Emory Univ., 252 F. Supp. 3d 1344, 1350-51 (N.D. Ga. May 10, 2017)
(Pannell, J.) (finding that the plaintiffs stated a claim for
imprudent retention of funds where the plaintiffs alleged both
that the plan's funds were all actively-managed and that "the
defendants . . . did not properly analyze the funds used in the
[p]lans").
Plaintiffs' generalized evidence is insufficient on its own,
however, to raise a question of material fact as to whether
Defendants prudently monitored and retained each of the Affiliated
Funds. As the Court indicated in its June 27, 2018, order, this
generalized evidence is insufficient on its own; Plaintiffs must
also have evidence of imprudence for each Affiliated Fund
individually. To begin, the Court agrees with Defendants that
there is no genuine issue of material fact as to Defendants'
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prudence regarding the Short Term Bond Fund, Investment Grade
Bond Fund, and Small Cap Growth Fund.
For the Short Term Bond Fund, Plaintiffs argue sufficient
evidence of Defendants' imprudence exists because the Fund was
underperforming its benchmark at the inception of the Class Period
and, according to the report of Plaintiffs' expert Dr. Steve
Pomerantz, the Fund ranked 61 out of 67 comparable funds at the
beginning of the Class Period [Doc. 262 at 26]. The Court finds
this evidence is simply insufficient to raise a question of
material fact regarding whether Defendants prudently monitored
and retained the Short Term Bond Fund. Notably, the two pieces
of evidence Plaintiffs point to only reflect the Fund's
performance at the start of the Class Period. Moreover, as the
undisputed facts indicate, the fund was rated green for a
significant portion of the Class Period and, although it did
underperform its benchmark at various points during the Class
Period, it was never significant enough to warrant a red rating.
Thus, there is not enough evidence of this Fund's underperformance
to create a genuine issue of material fact regarding Defendants'
prudence in monitoring and retaining it.
The same is true for the Investment Grade Bond Fund.
Plaintiffs again assert that, like the Short Term Bond Fund, this
Fund was underperforming its benchmarks at the beginning of the
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Class Period and had a low ranking--122 out of 151--amongst
comparable funds when the Class Period began [Id.]. Again, this
is not enough. Further, as the undisputed facts indicate, the
Fund was rated green for a significant portion of the Class Period
and never fell below a yellow ranking. The Court thus finds
there is insufficient evidence of potential imprudence regarding
the Investment Grade Bond Fund.
Plaintiffs' evidence regarding the Small Cap Growth Fund is
also insufficient to raise a question of material fact.
Plaintiffs contend the Small Cap Growth Fund performed poorly
during the entire Class Period and was thus imprudently retained,
but the evidence indicates the Fund's performance fluctuated and
that part of its underperformance was due to the Fund's benchmarks
being "hard to beat" [Doc. 252-8 at 3]. The Court finds no
genuine issue of material fact exists regarding Defendants'
prudence in monitoring and retaining the Small Cap Growth Fund.
i. Mid-Cap Equity Fund
The Mid-Cap Equity Fund was underperforming its benchmark at
the beginning of the Class Period and ranked last amongst 37
comparable funds at that time according to Plaintiffs' expert,
Dr. Pomerantz [Doc. 254-10 at 121. Evidence indicates the Fund
was performing "unacceptably low" before the Class Period;
notably, the Fund was removed from SunTrust's Pension Plan, in
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 82 of 93
which it had also been offered, due to its poor performance before
the Class Period even began. During the Class Period, the Fund
consistently underperformed its benchmark and had a negative
Information Ratio. In 2007, Towers noted that the Fund had ranked
below the median in both the short-term and long-term and had an
Information Ratio that had declined over a two-year period "as a
result of weaker selection decisions" [Doc. 264-15 at 20-21]. As
the undisputed facts indicated, the Fund's ratings were poor for
most of the Class Period; it was ranked red by Towers for an
extended period and was rated double red for six quarters between
2007 and 2009.
After years of continued and significant underperformance,
Towers recommended in September 2008 that the Plan Committee
either closely monitor the Fund and make a decision regarding it
after a few quarters or freeze the Fund option immediately [Doc.
251-46 at 7]. The Fund continued to mostly perform poorly but
was not removed by the Plan Committee until November 2010, well
after the administrative claim regarding the Affiliated Funds had
been filed by Mary Lee. The Plan Committee clearly allowed the
Fund to linger in the Plan for an extended period despite its
notable underperformance, in sharp contrast to the Plan
Committee's quick removal of the non-proprietary Lazard Mid-Cap
Institutional Fund in early 2008 after it was rated double red
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for two quarters. The Court finds the Fund's notable
underperformance and the Plan Committee's slow reaction thereto
--particularly compared to the Plan Committee's different
treatment of a poorly performing non-proprietary fund--raises a
genuine question of material fact as to whether Defendants
monitored and retained the Mid-Cap Equity Fund prudently during
the Class Period.
ii. Capital Appreciation Fund
Plaintiffs challenge the Plan Committee's retention of the
Capital Appreciation Fund after its management changed in 2007.
They argue the Plan Committee's decision to evaluate the Fund
based on "future performance rather than on past performance"
once the new management had been introduced "violates reasonable
standards of investment due diligence, specifically the rule
against offering a fund without a performance record" [Doc. 262-
27]. The Court disagrees. Prior to the change in management,
the Fund underperformed its benchmark and had a red or yellow
rating from Towers and FSOC, with one quarter being a double red
rating. The Fund's managers then changed in 2007 and, afterward,
the Plan Committee voted to keep the Fund "based on the
significant process and personnel improvements instituted" [Doc.
251-41 at 4].
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As Defendants indicate, the Plan Committee investigated the
new fund managers and closely monitored the Fund, and the Fund's
performance under new management improved. The Plan Committee's
reasoned, and subsequently monitored, decision to give new
management a chance to improve the Fund's performance--as opposed
to immediately removing the Fund--was a decision within the Plan
Committee's "discretionary authority" as fiduciary to the Plan.
See 29 U.S.C. § 1002(21)(A). The Court finds that the Plan
Committee's decision to keep the Fund under new management--as
opposed to removing the Fund--is not enough evidence of imprudence
to create a genuine issue of material fact.
iii. Prime Quality Money Market Fund
Plaintiffs allege Defendants were imprudent in failing to
identify a different RidgeWorth fund, the Cash Money Market Fund,
as a superior and less expensive alternative to the Prime Quality
Money Market Fund. As the undisputed facts indicate, the
Institutional Cash Money Market Fund was brought to the attention
of the Plan Committee by Leilani Fountaine, a SunTrust Vice
President who was uninvolved in the Plan. Defendants argue the
Plan Committee's failure to switch from the Prime Quality Money
Market Fund to the Institutional Cash Money Market Fund is
justified because, although the Plan Committee had intended to
make the switch, it "reversed course after learning that making
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the switch would cause participants to lose the protection of
federal guaranties" [Doc. 251-1 at 24]. Plaintiffs contend "[i]t
indicates a shocking lack of due diligence when other SunTrust
employees discover a superior alternative that Committee
Defendants never even looked for" [Doc. 262 at 27]. Plaintiffs'
expert Halpern stated in his rebuttal report that "Committee
members could not explain why they picked and kept the higher
cost fund" [Doc. 254-8 at 23].
The Court finds there is no genuine issue of material fact
and Defendants did not breach their duty of prudence as to the
Prime Quality Money Market Fund. It is true that the
Institutional Money Market Fund had lower fees, but the Court is
unaware of--and Plaintiffs have not cited to--authority requiring
the Plan Committee to find and offer the fund with the lowest
fees. See Hecker v. Deere & Co., 556 F.3d 575, 586 (7th Cir.
2009) (analyzing the plaintiffs' claim of excessive fees and
noting that "nothing in ERISA requires every fiduciary to scour
the market to find and offer the cheapest possible fund").
iv. Growth and Income Fund
Defendants contend the Plan Committee's monitoring and
retention of the Growth and Income Fund was prudent because they
followed the advice of Towers concerning the Fund and removed it
in early 2011. Plaintiffs, in turn, essentially contend that the
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Fund's April 12, 2011 removal--soon after the original complaint
was filed in this case--was too little too late. The Court agrees
with Plaintiffs and finds a genuine issue of material fact exists
as to whether Defendants prudently monitored and retained the
Growth and Income Fund.
In August 2008, the Plan Committee discussed concerns
regarding the Fund and asked Towers to interview the Fund's
managers. The Fund then continued to underperform, at one point
underperforming for five consecutive quarters and receiving red
and double red ratings. As with the Mid-Cap Equity Fund, the
extended and significant underperformance of the Growth and Income
Fund--particularly compared to how quickly the Plan Committee
acted to remove the poorly performing, non-proprietary Lazard
Mid-Cap Institutional Fund--creates a question of material fact
as to whether Defendants prudently monitored and retained the
Fund. This is especially true given the timing of the Fund's
removal; the speed with which the Plan Committee removed the Fund
after the filing of the complaint suggests the Plan Committee
itself may have recognized the imprudence of retaining the Growth
and Income Fund for so long. Thus, the facts alleged regarding
the Growth and Income Fund are sufficient to withstand summary
judgment.
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V. International Equity Index Fund
Defendants contend the Plan Committee's monitoring and
retention of the International Equity Index Fund was prudent
because the Fund was a unique, gross domestic product ("GDP")-
weighted investment that justified its higher fees relative to
other passively managed funds. Defendants also note the Fund's
fees were less than those of the only other GDP-weighted fund
during the Class Period. Conversely, Plaintiffs argue keeping
the Fund was imprudent because of its high expenses and fees
compared to other international equity index funds. Although the
Plan Committee's failure to invest in the cheapest fund available
does not necessarily imply a breach of fiduciary duty, see Hecker,
556 F.3d at 586, the Court finds Plaintiffs' allegation that the
Plan Committee invested in the most expensive fund of its kind
might. Thus, a genuine question of material fact exists as to
whether the higher fees for the International Equity Index Fund
were justified and thus finds summary judgment inappropriate as
to this Fund.
3. Loss Causation
Finally, Defendants assert there is no genuine issue of fact
that any breach by them caused loss to the Plan and thus
Plaintiffs' claims fail. The requirement of causation stems from
29 U.S.C. § 1109, which states that fiduciaries are liable for
is
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"any losses to the plan resulting from each breach [of fiduciary
duty]." See also Willett v. Blue Cross & Blue Shield of Ala.,
953 F.2d 1335, 1343 (11th Cir. 1992) ("Section [1109] of ERISA
establishes that an action exists to recover losses that
`resulted' from the breach of a fiduciary duty; thus, the statute
does require that the breach of the fiduciary duty be the
proximate cause of the losses claimed (citation
omitted)).
Defendants first argue Plaintiffs have failed to establish
loss to the Plan. "In determining losses under ERISA, the
relevant benchmark is what a prudent investment would have
returned in lieu of the imprudent one." In re Bellsouth Corp.
ERISA Litig., 1:02-CV-2440-JOF, 2006 WL 8431178, at *5 (N.D. Ga.
Dec. 5, 2006) (Forrester, J.). Moreover,
[c]ourts are not of one mind in the manner in which they determine losses for breach of fiduciary duty under ERISA § 409(a). Some courts have looked to the difference between actual investments and the `most profitable' investment alternative. See Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985). Other courts have measured losses by comparing the performance of the imprudent investment with the amount the plan `would have earned during this period as measured and adjusted by the movement of an appropriate index reflecting the stock market.' Dasler v. E.F. Hutton & Co., Inc., 694 F. Supp. 624, 634 (D. Minn. 1988) (looking to the return of the S&P 500 stock index for the purpose of establishing losses under ERISA 409) . Id.
M.
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Defendants contend that Plaintiffs' damages expert's
opinions, Dr. Pomerantz, are not tied to the facts of this case
because he "did not connect his loss calculations to specific
breaches," select suitable, comparators for the Affiliated Funds,
or "opine on the prudence of any of the alternatives that he used"
[Doc. 251-1 at 27 (quoting Wildman, 362 F. Supp. 3d at 710-11)].
In response, Plaintiffs argue Defendants cherry-picked passages
of Dr. Pomerantz's report and wrongly focused on Dr. Pomerantz's
first of three methods of calculating damages, which Plaintiffs
state they do not offer as proof of the loss suffered by the Plan.
In short, the Court agrees with Plaintiffs that they have
sufficiently established loss to the Plan such as to create a
genuine issue of material fact. As Plaintiffs contend--and as
the above-quoted In re Bellsouth Corporation Court indicated--Dr.
Pomerantz employed methods for damages calculations approved by
courts; moreover, the method specifically challenged by
Defendants is one upon which Plaintiffs do not rely. Defendants
also argue that, because Dr. Pomerantz did not state that the
Vanguard funds he used as comparators for his calculations were
prudent and suitable comparators for the Plan, there is no genuine
issue of fact regarding loss. The Court again disagrees. As
Plaintiffs point out, the Plan Committee replaced all the funds
in the Plan with Vanguard funds shortly after the end of the Class
:S
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Period, suggesting the funds were prudent and suitable for the
Plan. Moreover, the case cited by Defendants as support for
their argument, Wildman v. American Century Services, LLC, 362 F.
Supp. 3d 685, 710 (W.D. Mo. 2019), noted that whether Pomerantz's
comparator funds were suitable benchmarks was a "question[] of
fact." The Wildman court further indicated that, "[u]nlike the
court in Brotherston"--in which the Court found Pomerantz's
analysis made out a prima facie case of loss using Vanguard funds
--"this Court has heard Dr. Pomerantz's testimony and the
Defendants' cross-examination . . . . After hearing the evidence,
the Court finds Dr. Pomerantz's models did not use suitable
benchmarks . . . ." Id. Thus, even the case cited by Defendants
emphasizes that the determination of the appropriateness of the
comparator funds used is a question for trial, not summary
judgment. For these reasons, a genuine issue of fact exists as
to whether the Plan suffered loss.
Defendants next argue Plaintiffs have not sufficiently shown
loss causation. The Court again agrees with Plaintiffs that a
genuine issue of fact exists on the issue. First, the parties
disagree regarding who between them bears the burden of proving
loss causation. Regardless whose burden it is, however, the
Court finds summary judgment is not appropriate on the issue.
Defendants essentially contend that because Plaintiffs' expert,
Case 1:11-cv-00784-ODE Document 278 Filed 10/03/19 Page 91 of 93
Halpern, did not unequivocally state that Defendants should have
replaced all of the Affiliated Funds, no genuine issue of fact
exists as to loss causation. Halpern stated in his deposition
that he "think[s] it's highly likely that the--the
[A]ffiliated [F]unds would have been and should have been
replaced" [Docs. 254-10 at 22; 254-14 at 154:8-31. The Court
does not find Halpern's statement must be unequivocal for it to
be probative of the issue, and Defendants cite no authority
suggesting such. Thus, Halpern's statement is sufficient at this
stage to create a genuine issue of material fact as to whether,
by not removing the Affiliated Funds, Defendants caused the loss
alleged to the Plan.
IV. CONCLUSION
For the reasons provided above, Defendants' Motion to Exclude
Opinion 5 of Plaintiffs' Expert Dr. Steve Pomerantz, Ph.D. is
GRANTED [Doc. 250], and Plaintiffs' Motion to Exclude the Reports
of Defendants' Experts Dr. John R. Minahan and Dr. Bruce Stangle
is DENIED [Doc. 269]. Lastly, Defendants' Motion for Summary
Judgment is GRANTED IN PART and DENIED IN PART: it is GRANTED to
the extent Plaintiffs' claims are premised on Defendants' conduct
regarding the Short Term Bond Fund, Investment Grade Bond Fund,
Small Cap Growth Fund, Capital Appreciation Fund, and Prime
Quality Money Market Fund; and it is DENIED to the extent
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Plaintiffs' claims are premised on Defendants' conduct regarding
the Mid-Cap Equity Fund, Growth and Income Fund, and International
Equity Index Fund [Doc. 251]. The parties are DIRECTED to file
a proposed consolidated pretrial order no later than thirty days
from the date of entry of this Order. The parties are further
DIRECTED to file proposed findings of fact and conclusions of law
no later than seven (7) business days before trial, which will be
set at a later date.
SO ORDERED, this day of October, 2019.
ORINDA D. EVANS UNITED STATES DISTRICT JUDGE
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